Slowdown in UK growth but economy is still ‘robust’

24th October 2014

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The slowdown in UK growth reported today is nothing to be concerned about and is a reflection of weak economic performance in the eurozone.

UK third quarter gross domestic product (GDP) figures came it at 0.7% today, down from 0.9% in the second quarter but Ben Brettell, senior economist at Hargreaves Lansdown, said it ‘came as no surprise’.

‘The data has been telling us for a while that economic activity in the second half of the year wouldn’t expand as quickly as in the first,’ he said. ‘The forward-looking PMI surveys have been weakening, and yesterday we saw that retail sales fell slightly in September.

‘All this is unsurprising given the strengthening headwinds we face, most notably from the exceptionally weak economic performance of our largest trading partner, the eurozone.’

Brettell said the data should not be cause for concern as ‘the broad picture remains positive’.

‘Growth is still strong at 3% year-on-year, and the International Monetary Fund recently forecast the UK economy will outstrip the rest of the developed world over 2014 as a whole,’ he said. ‘In many ways the UK is proving to be the archetypal ‘goldilocks economy’ – not too hot and not too cold. Growth is relatively strong but inflation remain subdued which allows the Bank of England to provide continued support via ultra-low interest rates.’

He added that this would ‘come as scant consolation to workers who have suffered wage increases below the rate of inflation throughout the recovery to date and savers who continue to receive paltry rates of interest on their deposits’.

Helal Miah, investment research analyst at The Share Centre, agreed that investors should not worry about the slip.

‘These numbers confirm that there has been a mild slowdown from the previous quarter of 0.9%. The market will point towards a number of global events as a cause for a moderation of the growth rate, especially the worsening conditions in Europe and the spill over effects to the rest of the world,’ he said.

‘However, the figures still confirm that the UK is the most robust of the major developed economies. We believe that the recovery has more to go, albeit at slower rates than previously expected, and that UK stocks remain the best source for good returns for investors. Specifically, we believe the more UK focused small and mid-cap stocks should outperform the internationally exposed large caps.’

 

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