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Economy grows by 0.6% despite September 'weakness'

The UK economy expanded by 0.6% in the three months to September – its strongest quarter in almost two years – but there are growing signs of a slowdown ahead of Brexit.

Early official figures from the Office for National Statistics (ONS) – which were in line with the forecasts of economists and the Bank of England – pointed to a hot summer boost for consumer spending.

This rose 0.5% on the previous three months.

The figures also showed a 2.1% output increase from construction after weather disruption earlier in the year and manufacturing also picking up.

But the ONS said demand took a hit in September as temperatures cooled – with business investment contracting at the fastest pace since early 2016 as attention turned to uncertainties over the country’s future trading relationship with the EU.

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Head of national accounts at the ONS, Rob Kent-Smith, said: “The economy saw a strong summer, although longer term economic growth remained subdued.

“There are some signs of weakness in September, with slowing retail sales and a fall back in domestic car purchases.

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“However, car manufacture for export grew across the quarter, boosting factory output. Meanwhile, imports of cars dropped substantially helping to improve Britain’s trade balance.”

The ONS growth figure for the third quarter left the economy growing at an annual rate of 1.5%.

There have been a series of predictions that a slowdown is already under way to hurt the end of 2018.

The Bank of England said last month it was expecting expansion of just 0.3% in the current quarter – the final three months of the year.

The Office for Budget Responsibility downgraded GDP expectations for 2018 to 1.3% during last month’s budget.

Closely-watched activity surveys support the arguments of business groups, who have stepped up warnings that investment is drying up because of the lack of clarity over Brexit.

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However, the UK is not alone in facing the threat of a slowdown.

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Figures released this week by the EU predicted falling euro area growth each year up until 2020 – a consequence of not only Brexit but also higher global uncertainty led by Donald Trump’s trade war with China.

Brussels predicted UK output growth of just 1.2% next year – joining Italy at the bottom of its league table of growth expectations.

Both nations are locked in disagreements with the EU as Rome is fighting a battle to raise its spending against EU budget rules.

The pound barely budged in the wake of the figures as they came in largely as expected – trading at just above $ 1.30 – and suggested that Brexit concerns would continue to prevent the Bank from raising interest rates further.

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Thomas Pugh, UK economist at Capital Economics, said: “Brexit-related uncertainties could intensify over the coming months, if the EU rejects whatever final document the cabinet agrees on or if MPs vote against a deal.

“In the absence of those developments, however, we expect growth of about 1.3% over 2018 as a whole.”

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