Britain’s free-spending consumers again wrong-footed broad prognostications of a slowdown after June’s Brexit vote, driving a robust pace of economic growth in the final three months of 2016, data showed on Thursday.
Gross domestic product rose at a quarterly rate of 0.6 per cent between October and December, keeping the above-average pace seen in the first three months after June's referendum decision to leave the European Union.
Services, most susceptible to consumers, were the biggest gainers, while industry and construction lagged.
Economists polled by Reuters had forecast a slight slowdown to growth of 0.5 per cent. Some predictions ranged as low as 0.3 per cent.
“Clearly, life goes on, despite the Brexit vote,” Scotiabank economist Alan Clarke said.
Flirting with recession
Sterling hit a three-week high against the euro after the data and British 10-year government bond yields rose to their highest since mid-December.
Many economists had expected Britain to flirt with recession after it voted to leave the EU.
But the Office for National Statistics said that growth in 2016 as a whole slowed only slightly to 2.0 per cent from 2.2 per cent in 2015, and this was mostly due to weak growth in the first quarter, before the referendum.
The outlook for 2017 is murkier, however, in part because of the reliance on consumers.
Sterling’s near 20 per cent fall against the dollar is already pushing up costs for businesses, and consumers are likely to share the pain soon.
The Bank of England forecast in November that growth would slow to 1.4 per cent in 2017, but it may well raise forecasts for growth and inflation in a quarterly update next week.
Leading the pack – for now
Britain was probably one of 2016’s fastest-growing major advanced economies, and there are some signs this will continue into early 2017. Year-on-year growth, for example, exceeded that of Germany, where the economy grew 1.9 percent last year.
The Confederation of British Industry on Wednesday also reported strong orders for manufacturers in January.
However, the central bank is uneasy about the composition of British growth, with governor Mark Carney warning that it relies heavily on consumers who will be vulnerable to higher prices.
British carmakers cut investment by a third last year due to Brexit worries, their lobby group said on Thursday.
“The near-term momentum in GDP likely will not compel the Monetary Policy Committee to abandon its view that the economy will slow this year as a result of the Brexit vote,” Pantheon Macroeconomics’s Samuel Tombs wrote in a note to clients.
Services output – which is most sensitive to consumer spending – grew by 0.8 percent.
By contrast, industrial output was flat – partly reflecting a slump in oil production due to maintenance work in October – while construction inched up by 0.1 percent.
British companies are also facing a highly uncertain outlook in the years ahead. Prime minister Theresa May has said she plans to launch formal divorce talks between Britain and the EU before the end of March.
Her finance minister Philip Hammond has said the resilience of the economy means Britain will enter the Brexit negotiations from a position of strength.
“There may be uncertainty ahead as we adjust to a new relationship with Europe, but we are ready to seize the opportunities to create a competitive economy that works for all,” he said on Thursday.
– Reuters
