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UK economy shows no sign of post-Brexit vote slowdown in late 2016

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Britain's economy maintained its robust momentum in the final three months of 2016, again wrong-footing expectations that June's vote to leave the European Union would rapidly take its toll on growth.

[LONDON] Britain's economy maintained its robust momentum in the final three months of 2016, again wrong-footing expectations that June's vote to leave the European Union would rapidly take its toll on growth.

Gross domestic product rose at a quarterly rate of 0.6 per cent between October and December, Britain's Office for National Statistics said, maintaining the above-average pace seen in the first three months after June's Brexit referendum.

Economists polled by Reuters had forecast a slight slowdown to growth of 0.5 per cent.

Compared with a year earlier, the economy grew by 2.2 per cent, again slightly faster than expected.

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But looking at 2016 as a whole, growth slowed modestly to two per cent from 2.2 per cent in 2015.

"Strong consumer spending supported the expansion of the dominant services sector and - although manufacturing bounced back from a weaker third quarter - both it and construction remained broadly unchanged over the year as a whole," ONS statistician Darren Morgan said.

Britain was probably one of last year's fastest-growing major advanced economies, and there are some signs this will continue into early 2017, with the Confederation of British Industry reporting strong orders for manufacturers in January.

Year-on-year growth in Britain in 2016 exceeded Germany's, where the economy grew 1.9 per cent last year.

But most economists predict the economy will suffer this year as sterling's hefty fall since the referendum pushes up inflation for households and business.

Bank of England Governor Mark Carney has warned that growth has become more reliant on consumer spending.

Thursday's figures showed that in the fourth quarter of 2016, services output - which is most sensitive to consumer spending - grew by 0.8 per cent.

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 per cent.

Unbalanced growth could prove a problem for 2017, when the weaker currency is forecast to make itself felt through higher inflation, curbing consumers' spending power and hitting businesses with higher costs.

Figures from Britain's motor industry released earlier on Thursday showed that despite record production last year, manufacturers had cut investment by a third due to worries about Brexit.

In November the BoE forecast growth would slow to 1.4 per cent this year as inflation exceeds 2.7 per cent by the end of the year. The bank is widely expected to revise its forecast for inflation up further next week, according to a Reuters poll.

Prime Minister Theresa May has said she plans to launch formal divorce talks between Britain and the EU before the end of March, something that is likely to highlight the uncertain outlook for the country's economy in the years ahead.

Her finance minister Philip Hammond has said the resilience of the British economy since the vote means the country will enter the Brexit negotiations from a position of strength.

The preliminary estimates of GDP do not include a breakdown of spending, and are heavily based on estimated data.

REUTERS

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