UK GDP slows more than expected in third quarter

UK economic growth slowed more than expected in the third quarter, reflecting weakness in manufacturing and construction industries, the Office for National Statistics revealed on Tuesday.

Gross domestic product rose 0.5% in the third quarter compared to 0.7% in the second quarter, well below estimates for a 0.6% increase.

On a year-on-year comparison, GDP unexpectedly eased to 2.3% from 2.4%.

The ONS said a 0.7% increase in services activity was offset by 2.2% fall in construction growth and a 0.3% drop in manufacturing production amid a slowdown in China's economy.

“The lacklustre GDP figures revealed today should come as little surprise. A relatively strong pound, coupled with a wounded Chinese economy, has dampened demand for exports," said Dennis de Jong, managing director at UFX.com.

“For all the talk of a ‘Northern Powerhouse’, the UK steel industry suffered a number of crippling blows in the past month and chancellor George Osborne is now courting China for much needed foreign investment in Britain.

"Osborne will now be hoping that Brits continue to spend in the run up to Christmas, like they have done for the Rugby World Cup, to pump life back into the economy.”

Howard Archer, chief UK and European economist at IHS Global Insight, said the easing in GDP "reinforces our belief" that the Bank of England will hold off on raising rates until the second quarter of 2016. He said IHS expects GDP will rise 0.6% quarter-on-quarter in the fourth quarter, resulting in 2015 GDP of 2.4%.

"We see GDP growth also coming in at 2.4% in 2016," Archer added.

Chris Williamson, chief economist at Markit, expects the economy will grow 2.3% in 2015, down from 2.9% in 2014 and below its long-term trend rate.

“The cause for concern here is that the business surveys indicate that the slowdown is spreading from the struggling manufacturing sector to the far larger services economy, meaning growth looks set to slow further in the fourth quarter," he said.

"There are signs that companies are becoming more risk averse as global growth worries intensify, pulling back on their hiring, investment and spending intentions, which could lead to the slowdown becoming deeper and more entrenched."