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No sign of Brexit slowdown

UK economy heads off fears to grow 0.5%

Wireline industryBritain’s economy expanded by 0.5% in the three months since the EU vote. This was down from 0.7% in previous quarter, but showed some resilience amid fears of a sharp slowdown.

An interest rate cut in November now seems to have receded and there could be some upward revision to forecasts.

However, the mood is cautious as the Brexit talks edge towards triggering Article 50. The Chancellor is being urged to take measures in the Autumn Statement that will build confidence and encourage investment.

Martin Beck, senior economic advisor to the EY ITEM Club, said:The GDP reading for Q3 demonstrated that the short-term impact of the vote to leave the EU has been very limited. However, the economy is not out of the woods yet and is likely to face a particularly challenging period in the early part of next year when higher inflation starts to bite on the consumer.

“Yet again all of the growth in Q3 came from the services sector, with both manufacturing and construction seeing output contract.

“Encouragingly, not only did the services sector display impressive resilience across Q3, but the monthly breakdown suggested solid momentum through the quarter, offering a decent platform for Q4.

“The high frequency data available thus far suggests that the consumer continued to do all of the heavy lifting, but we will have to wait another month before we the expenditure breakdown becomes available.”

“An upward revision to our forecast for 2017 GDP growth is now on the cards and today’s data may also prove to be the final nail in the coffin of a November rate cut.”

Rain Newton-Smith, CBI Chief Economist, said: “Growth slowed in the aftermath of the EU referendum, although it’s still higher than many expected just after the vote.

“The UK was on firm foundations going into the referendum and it’s vital that we now seek to preserve these economic strengths.

“The Government will need to set out an ambitious, pro-enterprise agenda in the Autumn statement which will get firms investing now and lift productivity in the future across all UK regions.”

Anna Stupnytska, Global Economist at Fidelity International, said: “Q3 GDP data came in higher than consensus expectations. While data continues to point to the economy’s resilience, it is still too early to read much into it.

“As survey evidence suggests, investment intentions have been hit following the Brexit vote and this should ultimately manifest in lower actual business investment numbers in the coming quarters.

“As we move into 2017, lower real income growth on the back on higher inflation and a potentially weaker labour market dynamic should start impacting consumption. But given the easing in financial conditions on the back of the lower pound, the economy might well manage to avoid recession next year.

“Fiscal stimulus in the form of infrastructure investment and some measures to boost consumer spending and business investment, perhaps involving tax cuts, would also go some way towards limiting the Brexit fallout in the short-to-medium term.”

Nancy Curtin, Chief Investment Officer at Close Brothers Asset Management, said: “The Brexit bogeyman hasn’t yet been as scary as initially feared. Any lingering concerns over an immediate collapse in growth in 2016 have been officially put to bed, with output continuing to grow in the first major assessment of domestic activity post-referendum.

“Supportive monetary policy has played a part, while the softer pound has kept factory orders ticking along.”

TUC General Secretary Frances O’Grady said: “We can’t yet say what impact Brexit will have on our economy, but these figures show there’s no room for complacency. British manufacturing is still struggling, and now faces real uncertainty following the vote to leave the EU.

“The government must use next month’s Autumn Statement to boost Britain’s jobs and wages. This means investing in infrastructure like roads, rail and homes, and raising the national minimum wage.”

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