The signs have been there for some time – the UK economy has been losing momentum. This was confirmed today by official figures showing 0.5 percent growth in the July-to-September period, down from 0.7 percent in the previous quarter. 

It’s important to remember this is only the first estimate of GDP – based on less than half of the data which will ultimately be available. Revisions to today’s figures are likely in the coming months. Weaker construction and manufacturing output are the primary reasons for the slowdown, which could prompt concerns that the UK economy’s reliance on the services sector is increasing further. Manufacturing output declined 0.3 percent in the quarter and construction was down by 2.2 percent. The manufacturing sector, which represents 10 percent of the economy, is battling twin headwinds of a stronger pound and weaker demand from abroad as the global economy falters.

Yesterday’s CBI industrial trends survey showed manufacturing production fell in the quarter to October – the first fall in two years. Worryingly domestic orders declined in addition to a drop in export orders. The Bank of England remains confident the UK economy will remain healthy in the final quarter of the year, with wages and productivity both making good progress. Furthermore, monthly data has been a little better in September than in the two previous months, which could signpost a stronger end to the year. Overall the domestic economy looks in reasonable health, with growth solid (if unspectacular), employment at an all-time high and inflation low. However, the global outlook is undoubtedly darker and this could act as a brake on growth over the next few quarters. On Thursday, equivalent figures from the US are released, with analysts predicting a deceleration on that side of the Atlantic too. The US Federal Reserve announces its latest policy decision on Wednesday, with a no-change decision expected.