So much for “rebalancing the economy”: manufacturing across the UK is now reckoned to be in recession and heading for a third successive quarter of contraction.

The latest assessment, just ahead of third quarter GDP numbers due on Thursday, comes from HSBC’s chief UK economist SIMON WELLS.

He forecasts Thursday’s figures will show that growth has slowed to of 0.6 per cent quarter on quarter, slightly lower than the out-turn for the three months April to June.

This overall growth number masks sharp divergences in the fortunes of different sectors.  While service sector growth should remain strong in the third quarter, the construction sector looks set for a sharp decline after a good second quarter.

But it is the manufacturing sector that is the biggest cause for concern. Several surveys and official data, says Wells, “point to a marked slowing in activity.  Indeed, manufacturing is already in its third recession in less than a decade and the level of activity in August 2015 was some seven per cent below its 2007 peak.”

Looking ahead, surveys suggest the service sector may be slowing slightly. The most significant negative indicator for services is the headline PMI activity balance, which fell sharply between July and September.

But other surveys and the forward -looking PMI future activity index (which has tracked official data better over recent years) points to a more modest decline in service sector activity. Surveys suggest construction should grow robustly, if unspectacularly, over coming quarters.

HOWARD ARCHER, economist at Global Insight, expects GDP growth in the third quarter to have moderated to 0.5% quarter-on-quarter from 0.7% quarter-on-quarter in the April-June period. The economy is likely to have been held back by contraction in construction output and only slight overall expansion in industrial production (handicapped by a third successive quarter of contracting manufacturing output). Meanwhile, growth in the dominant services sector seems likely to come in around the 0.6 per cent rate seen in the second quarter.

Year-on-year GDP growth is seen moderating to a two-year low of 2.3 per cent, down from 2.4 per cent in the second quarter. Annual growth peaked at 3.1 per cent in the second quarter of last year.

However, despite softer expansion in the third quarter, Archer remains relatively upbeat over UK growth prospects. He expects GDP growth to come in at 0.6 per cent quarter-on-quarter in the October- December period, resulting in overall GDP growth of 2.4 per cent in 2015. He sees GDP growth also coming in at 2.4 per cent in 2016.





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