The UK economy expanded at the fastest rate in two years during the third quarter, but began to show signs of slowing ahead of Brexit, as more corporate investment decisions were suspended.
In what is likely to be a peak for the economy this year, the latest snapshot from the Office for National Statistics (ONS) showed GDP growth in the three months to the end of September 0.6% – the fastest expansion since the last quarter of 2016.
But growth began to falter as the economy push from the heat during the summer and England's performance at the World Cup vanished.
GDP growth was planned in August and September, with signs of weakness in corporate spending, retail sales and a decline in purchases of domestic cars.
The city's economists had expected growth of 0.1% in September, although the British economy unexpectedly stagnated for the second consecutive month, while new car registrations declined by one-fifth in the worst September for trade automotive industry in a decade.
Although there are signs of weakness as the country prepares for Brexit on March 29 next year, on an annual basis, the British economy has grown by 1.5%.
Philip Hammond, the chancellor, said in a visit to the Fuller brewery in London, just two weeks after the budget, that the growth rate was "the test of the underlying strength of our economy".
There are, however, growing signs of underlying weakness, as Theresa May strives to agree on a Brexit agreement with the EU and corporate investment has fallen at the fastest rate since the beginning of 2016.
The latest data reveal a contraction in corporate spending of 1.2% during the third quarter, which was the first time that corporate investment slipped for three consecutive quarters since the global financial crisis of ten years ago.
Azad Zangana, senior European economist with City Schroders fund manager, said that concerns for Brexit were among the reasons why companies delay investment decisions.
"Although more recently, these delays are turning into cancellations, with almost daily announcements of manufacturing losses and plant closures while companies move production out of the UK," he added.
The largest contribution to growth in the third quarter came from the UK services sector. Net trade – the difference between imports and exports – contributed 0.8 percentage points to GDP growth, with exports increasing by 2.7% compared to the stagnant growth in imports.
Construction production continued to accelerate after a weak start to the year, when the "beast from the east" time freeze forced cranes and diggers across Britain to lose control. Also the quarterly production in manufacturing rose for the first time in 2018.
With a growth of 0.6% in the third quarter, the latest GDP figures indicate that the UK economy has grown three times faster than the eurozone, after the growth of the blockade of the single currency fell to 0.2%, the lowest rate in four years.
However, economists believe that UK growth has probably peaked. The Office for Budget Responsibility, the government's economic authority, estimates that growth will fall to 1.3% in 2018 from 1.7% last year, which would make 2018 the worst year for the economy since the 2009 recession.
Rob Kent-Smith, the head of national accounts at the ONS, said: "The economy has seen a strong summer, although long-term economic growth has remained modest".
Economists said that much of the acceleration of growth during the third quarter would come when companies and businesses would realize the purchases and sales they would have made at the start of the year, but they were not able to do it from the icy weather of February and March.
Samuel Tombs, of the consulting firm Pantheon Macroeconomics, said: "Two consecutive months of stagnation in GDP [during August and September] stresses that the economy has little momentum and that the strong growth rate of the previous quarter simply reflects the rebound linked to weather conditions in the summer ".
Strengths and weaknesses in the UK economy
Aided by the milder climate during the summer, household spending grew by a strong 0.5% in the third quarter. The service sector, the main driver of growth in the economy, grew by 0.4%. However, consumer spending started to slow down in August and September.
Power: job market
Unemployment has been at its lowest levels since the mid-1970s, while average weekly earnings are growing at the fastest pace in almost a decade. However, households were pressured by higher inflation, with real pay again to return to the peak recorded before the financial crisis.
Weakness: corporate investment
The uncertainty linked to Brexit put the dampers on corporate investments, with a decrease of 1.2% of the amount invested by the companies in the third quarter. This marked the third consecutive quarterly decline – the first time this has happened since the global financial crisis.
Weakness: Machinery industry
Production of transport equipment decreased by 0.2% in the third quarter, in the first of these decreases from the financial crisis. Economists have seen the decline in weaker car production levels, including squeezed domestic incomes and new emissions tests.