The Quarter That Matched Every Forecast
Natural gas prices in September stood at about three times their February level, before the attack on Iran by the United States and Israel. Everything in the third-quarter growth figures has to be read against that move, because the price of energy is what separates an ordinary quarter from the one just reported.
The UK economy grew by 0.7% in the three months to the end of September. [1] City analysts had expected precisely that figure, which makes the release a confirmation rather than a surprise: households and firms kept spending and producing while oil and gas prices climbed underneath them.
The Office for National Statistics, which compiles the quarterly accounts, points to fuel and gas prices. A jump in the cost of petrol, diesel and natural gas following the re-escalation of the conflict in the Middle East played an important role in restricting economic growth over the quarter.
Restricting is the operative word. Growth of 0.7% is expansion that happened despite a rising energy bill — not expansion the energy bill produced.
September, the Month That Carried the Quarter
Reduced to its final month, the quarter sharpens. The economy grew by 0.2% in September alone, where economists had expected no growth at all; that single month is where the upside surprise sits. [1]
August cuts the other way. The statistics office revised its August estimate down from 0.1% to zero, removing a sliver of momentum that had previously been assumed.
September was the month in which oil first pushed above $100 a barrel. Oil rose above $100 a barrel during September and held above that threshold until earlier this month, though prices have fallen in recent days. [1] Those two facts sit side by side: the month with the most expensive fuel on the world market is the month that delivered a 0.2% expansion, and the quarter containing it delivered 0.7%.
A Boost, A Stale Forecast, A Rate Rise
The September estimate lands as a boost to the UK finance minister, John Healey. It arrives in the same release that makes the official growth forecast look old: at the time of the November budget, the Office for Budget Responsibility expected the economy to expand by 1.2% this year, a figure that already looks out of date as growth continues to exceed expectations.
The Bank of England has moved in the other direction. Policymakers voted last week to raise interest rates by a quarter of a percentage point, to 4%, in order to cool upward forces on the general level of prices in the economy.
The inflation they are responding to has risen this year mostly in response to higher motor fuel prices. In the UK those prices have pushed the cost of petrol above £1.70 a litre and diesel towards an average of £2 a litre — the same channel the statistics office identifies as a drag on output.
The figures point to a tension rather than a paradox. Policymakers voted to raise interest rates to cool inflation even as the domestic economy kept expanding, and the arithmetic of that combination is what the next quarter will test.