LONDON—The U.K.’s economy expanded in the third quarter at its fastest pace in almost two years, making it one of only a handful of countries in Europe to avoid the broad slowdown across the continent.
Still, figures show the British economy lost momentum as summer turned to fall, suggesting growth is faltering as the U.K. enters its final five months as a member of the European Union.
In the third quarter, the U.K. economy expanded at an annualized rate of 2.5%, the fastest clip since the last three months of 2016, the Office for National Statistics said Friday. Compared with the previous quarter, the economy grew 0.6%.
The expansion was powered by consumer spending and a buoyant performance on trade. A pickup in exports was accompanied by a fall in imports, primarily cars, as hiccups in new emission tests hit automobile production elsewhere in Europe, the agency said. Business investment fell on the quarter, underscoring how uncertainty about the U.K.’s future ties to the EU after Brexit is crimping corporate spending.
The U.K.’s growth spurt puts it among the best-performing EU economies in the third quarter, outpacing France and Italy, while keeping up with Spain.
The eurozone as a whole had its worst quarter since 2013, growing an annualized 0.6%, reflecting a slowdown in exports to cooling Asian economies as well as financial stress in Italy.
Emissions tests that boosted U.K. growth were a drag on eurozone activity. Germany—the eurozone’s largest economy—probably flat lined during the quarter, according to its central bank, as the slow pace of tests weighed on industrial production. Germany will release official growth figures on Nov. 14.
In the third quarter, the U.S. economy expanded 3.5%.
The figures on U.K. growth come as negotiators from London and Brussels attempt to overcome the final hurdles to agreeing terms for the U.K.’s withdrawal from the EU.
Britain is set to exit from the EU in March, leaving Prime Minister Theresa May with only a few months to nail down a withdrawal treaty, sketch out the contours of the U.K.’s future economic ties to the EU and persuade a fractious Parliament to nod the package through.
The main sticking point in Brexit talks remains the U.K.’s land border with the Republic of Ireland. Both sides say they want the border to remain as open to trade and travel. But they can’t agree how to do that once the U.K. leaves the EU’s customs area and regulatory orbit.
More recent signals from the economy suggest the third quarter was likely the high-water mark for U.K. growth for the year. Business surveys point to a sharp weakening of activity in October. The International Monetary Fund said Thursday it expects growth for the year as a whole of just 1.4% in 2018, down from 1.7% in 2017.
Write to Jason Douglas at Jason.Douglas@wsj.com<mailto:Jason.Douglas@wsj.com> and Paul Hannon at Paul.Hannon@wsj.com<mailto:Paul.Hannon@wsj.com>