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UK growth respite before expected slowdown on weak output, Brexit

© AFP/File | Britain's economy picked up speed in the third quarter, data showed, but overall growth will likely remain sluggish over the next five years as a result of poor productivity and the fallout from Brexit.

LONDON (AFP) - 

UK economic growth rose in the third quarter thanks to consumer spending, official data showed Thursday, but the data is unlikely to push annual GDP above a gloomy government forecast, as poor productivity and Brexit cloud the outlook.

Gross domestic product grew by 0.4 percent in the July-September period, up slightly from 0.3 percent in the second quarter, the Office for National Statistics said, confirming an initial estimate released last month.

Analysts said the data pointed to GDP growth of 1.5 percent for the year, in line with the government's latest updated forecasts.

In his annual budget on Wednesday, finance minister Philip Hammond had downgraded his growth prognosis up until 2021.

GDP was now expected to expand by 1.5 percent this year, 1.4 percent in 2018, 1.3 percent in both 2019 and 2020, and 1.5 percent in 2021, much slower than expected, Hammond said.

And a marginal pick-up in the headline growth rate for the third quarter of 2017 will do nothing to dispel that gloom, analysts said.

"Despite the modest pick-up in growth in the third quarter and stronger consumer spending, the outlook for the UK economy currently remains challenging," said Howard Archer, economist at the EY ITEM Club research group.

The Conservative government's budget was published against a backdrop of high UK inflation that is stretching household incomes.

British inflation has jumped this year as a Brexit-hit pound ramped up import costs, which led the Bank of England to raise its key interest rate for the first time in a decade last month.

And economic output is being hampered largely by long-standing weak productivity -- that refers to the average level of output produced per worker or per hour.

"The budget was dominated by the... slashing of productivity forecasts, which wiped three percentage points off predicted economic growth over the next five years," the Centre for Policy Studies think tank said on Thursday.

"As a result, Britain will borrow more and is further away from achieving a budget surplus."

Referring to the UK's growth situation, Hammond told the BBC on Thursday: "We can either stare at each other and say it's terrible or we can get on to do something about it."

He added: "What we have decided to do is to invest in infrastructure, invest in training and skills... to do something about that productivity growth."

Hammond, however, has had to dig deeper also for Brexit preparations, announcing Wednesday that the government will put aside another £3.0 billion ($4.0 billion, 3.4 billion euros) ahead of the UK's departure from the European Union due March 2019.

"It's an absolute obligation on the government to prepare for all the reasonably foreseeable outcomes that could come out of these (exit) negotiations" with Brussels, Hammond told Sky News on Thursday.

"We have to make these arrangements and these investments to make sure that things are operating smoothly, that trade and business is not disrupted," he added.

© 2017 AFP