Consumers Help U.K. Economy Withstand Shaky Global Backdrop

  • First estimate of third-quarter GDP will be published Tuesday
  • Economists expect growth of 0.6 percent despite global turmoil

Britain’s economy is holding firm for now as domestic demand weathers a global slowdown that’s keeping central banks around the world on alert.

Economists forecast that data next week will show expansion of 0.6 percent in the third quarter, close to the 0.7 percent pace reached in the previous three months. That would also mark an 11th straight quarter of growth.

Consumer spending is providing support as Britons take advantage of stagnant prices and rising wages, though weak spots have emerged. Manufacturing has faltered and services growth was the slowest in more than two years in September.

“The U.K. can live with quite a weak manufacturing sector if the rest of the economy is doing OK,” said David Tinsley, an economist at UBS in London. “In a way, that’s almost the norm, and so you have to look at all the fundamentals driving the service sector, and they all seem good to me.”

With the economy growing and the labor market strengthening, Bank of England policy maker is Ian McCafferty is voting to increase interest rates now, while Kristin Forbes has said they need to rise “sooner rather than later.” The Monetary Policy Committee will announce its next decision on Nov. 5 alongside new forecasts.

The global backdrop remains a risk for the U.K. China’s central bank cut its benchmark lending rate and reserve requirements for banks on Friday, stepping up efforts to cushion a deepening economic slowdown. That came a day after European Central Bank President Mario Draghi hinted that more stimulus for the euro area will be unveiled in December.

Britain is traditionally the first of the Group of Seven nations to report quarterly GDP figures. The Office for National Statistics will release the numbers on Tuesday in London and will base its estimate on about 44 percent of the data that will ultimately be available.

The U.S. will follow two days later, with its data forecast to show GDP rose at an annualized rate of 1.6 percent, down from 3.9 percent in the previous three months.

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