GDP growth undershoots market expectations in the third quarter

GDP reading: GDP growth slowed to 0.1% on a seasonally adjusted quarter on quarter basis in the third quarter, down from 0.5% in the second quarter and marking the slowest growth since Q4 2023. The reading undershot market expectations, and meant that GDP per person actually declined. Looking at a monthly profile, the economy flatlined in July in month-on-month terms, expanded in August and contracted in September. On an annual basis, economic growth picked up to 1.0% in Q3, up from the previous quarter's 0.7% increase and marking the best result since Q4 2022.

Drivers: Private consumption increased 0.5% in the third quarter, which was above the second quarter's 0.1% expansion. Public consumption growth softened to 0.6% in Q3 (Q2: +1.1% s.a. qoq). Meanwhile, fixed investment growth improved to 1.1% in Q3, following the 0.6% expansion recorded in the prior quarter. On the external front, exports of goods and services contracted at a softer pace of 0.2% seasonally adjusted quarter on quarter in the third quarter (Q2: -0.3% s.a. qoq). Conversely, imports of goods and services deteriorated, contracting 1.5% in Q3 (Q2: +6.3% s.a. qoq).

GDP outlook: Our Consensus is for the economy to accelerate in Q4 after Q3’s disappointing showing, though growth will remain mild nonetheless.

Panelist insight: On the outlook, ING’s James Smith said: “Don’t read too much into the latest slowdown in UK GDP. The figures look volatile and consumer-facing services – a key barometer of economic health – have been growing more quickly and consistently over the summer. Expect modest growth over the winter and a boost next year from the latest budget, though the health of the jobs market remains a key risk in 2025.”

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