Wednesday 13 December 2017

Consumers drive growth as UK defies Brexit gloom

Stock image. PA
Stock image. PA

David Milliken

Britain's free-spending consumers again confounded warnings that June's Brexit vote would cause an immediate slowdown in the country's economy, driving robust growth in the final three months of 2016, data showed yesterday.

Gross domestic product rose at a quarterly pace of 0.6pc between October and December, keeping up the same above-average pace seen in the initial three months after the referendum decision to leave the European Union.

A Reuters poll of economists had forecast a slight slowdown to growth of 0.5pc.

Sterling, which lost as much as 20pc against the dollar last year after the shock vote, hit a six-week high against the dollar.

British 10-year government bond yields rose to their highest since mid-December as some investors believed the Bank of England might soon start to move toward an interest rate hike.

"What the figures today show is that the UK economy continues to be resilient and continues to confound the sceptics," Chancellor Philip Hammond said.

Though most economists expect higher inflation this year to squeeze consumers - and see longer-term damage to trade from Brexit - Mr Hammond said the economy's resilience meant Britain could be optimistic about the Brexit talks that lie ahead.

"Clearly, life goes on, despite the Brexit vote," Scotiabank economist Alan Clarke said.

The Office for National Statistics said services, which are most sensitive to consumer spending, were the biggest gainers, growing by 0.8pc.

Industrial output was flat and construction only edged up slightly.

Growth in 2016 as a whole slowed only slightly to 2pc from 2.2pc in 2015, but this was mostly due to weak growth in the first three months of the year, before the referendum.

Many economists had expected Britain to flirt with recession after the Brexit vote. But it was probably one of 2016's fastest-growing major rich economies. Its year-on-year growth exceeded Germany's 1.9pc last year.

The BoE raised its forecast for growth in 2017 to 1.4pc in November and it may well raise it again in a quarterly update next Thursday after the run of strong economic data.

But the outlook for 2017 remains murky, largely because of Britain's reliance on its consumers, which BoE Governor Mark Carney flagged as a risk this month.

Sterling's fall is already pushing up costs for businesses and households are likely to share the pain soon.

Allan Monks, a JP Morgan economist, said the BoE would probably stick to its neutral stance on interest rates next week.

But if the expected slowdown in the economy did not materialise, it could start to signal a hike later this year. (Reuters)

Irish Independent

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