October 10, 2018 / 8:45 AM / 2 months ago

UK economy's summer surge turns out stronger than expected

LONDON (Reuters) - The British economy’s summer surge turned out to be stronger than expected as hot weather spurred consumer spending, although a weak August hinted at slower growth ahead of Brexit next year, data showed on Wednesday.

The economy expanded 0.7 percent during the three months to August, the Office for National Statistics (ONS) said, beating the consensus in a Reuters poll of economists for growth of 0.6 percent.

While Wednesday’s data is likely to come as a pleasant surprise to Bank of England officials who had expected to see slower growth over the third quarter, they will be more cautious about the coming months.

More recent private-sector business surveys point to fairly modest economic growth, suggesting the hot weather may have been a factor behind the upturn seen over the summer months.

In August alone the economy stagnated, the ONS said, compared with forecasts for a rise of 0.1 percent.

“We think there is a very real risk that growth will slow markedly in the fourth quarter due to appreciable Brexit and political uncertainties weighing down on business investment,” Howard Archer, chief economic adviser to the EY ITEM Club consultancy, said.

Britain’s economy slowed after the June 2016 Brexit vote, its growth rate slipping from top spot among the Group of Seven rich nations to jostling with long-term laggards Japan and Italy for bottom place in the rankings.

Consumers in particular were squeezed by the jump in inflation which followed the pound’s tumble after the referendum, especially as wages have failed to keep up.

That said, in recent months an unusually warm summer and the soccer World Cup encouraged many to splash out on drinks and pub and restaurant visits.

“The economy continued to rebound strongly after a weak spring with retail, food and drink production and housebuilding all performing particularly well during the hot summer months,” ONS statistician Rob Kent-Smith said.

“However, long-term growth continues to lag behind its historical trend.”

Slideshow (2 Images)

In year-on-year terms, growth slowed in August to 1.5 percent from 1.7 percent in July.

A flat August for the economy came despite a solid rise in oil and gas output, which reflected a smaller-than-usual amount of maintenance taking place in production sites. Manufacturing output, however, contracted and there was no growth in the services industry.

Separate trade data showed Britain’s goods trade deficit with the rest of the world touched a three-month high in August, despite the smallest gap in EU goods trade since September 2015.

Editing by Alison Williams

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