Post-Brexit British economy stronger than anticipated

Britain’s economy grew faster than previously thought in the three months after the Brexit referendum, rising by 0.6% compared with initial estimates of 0.5%.

The unexpected upgrade to GDP came as the Office for National Statistics made surprise revisions across all sectors of the economy. The services sector – which covers around 80% of economic activity – the industrial sector and construction were all revised upwards.

The services sector was the main driver of growth led by transport & communications, which expanded by 2.6% and the finance sector, which saw growth of 0.8% quarter on quarter.

However, the first two quarters of the year were revised down by one percentage point each, leaving the annual growth rate at 2.2%, down from the earlier estimate of 2.3%.

Howard Archer, chief UK economist at IHS Global Insight, said the revised figures emphasised the UK’s lopsided recovery, with higher growth in the City and consumer spending while the manufacturing sector continued to decline, falling by 0.8% in the third quarter, and a sharp decline in net trade.

Darren Morgan, head of GDP at the ONS, agreed that most of the revisions stemmed from solid consumer spending and better figures from the financial services sector.

“Robust consumer demand continued to help the UK economy grow steadily in the third quarter of 2016. Growth was slightly stronger than first thought, though, due to greater output in the financial sector,” he said.

Wages jumped by 4.5% to their highest growth rate since 2013. But rising inflation and the impact of cuts to benefits meant disposable incomes shrank by more than the ONS said in its first estimate last month.

Net trade also slumped to -1.2% from +0.3% to register the biggest drag from the export sector on GDP since the second quarter of 2012.

Archer said the UK still faces a decline in growth in 2017 as inflation put a further squeeze on consumer spending and business investment remained low.

He said: “Despite seeming ongoing resilience at the end of 2016, 2017 is likely to be an increasingly difficult year for the UK economy.

“Indeed, we expect GDP growth to slow markedly to 1.3% in 2017 – as consumer fundamentals weaken markedly and business uncertainty is heightened by the government triggering article 50 to formally start the UK’s exit from the European Union. Businesses are expected to become increasingly cautious over investment and employment.”

A spokesperson for the Treasury said: “The fundamentals of the UK economy are strong, but there remain challenges ahead. The chancellor set out, in the autumn statement, his plan to support a resilient economy that works for everyone by driving productivity and supporting working people, while maintaining fiscal discipline.”