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UK economy defies Brexit to grow at faster rate

Wireline industryThe UK economy grew by 0.6% in the last quarter, faster than expected, as consumer spending picked up.

For 2016 as whole, it grew by 2%, against 2.2% in 2015. Most economists had expected the quarterly growth figure to come in at 0.5%.

Martin Beck, senior economic advisor to the EY ITEM Club, said:Growth in the last quarter of 2016 suggests that Brexit-related headwinds haven’t made their impact felt yet.

“With the rise in UK GDP in Q4 matching the rates seen in the second and third quarters, 2016 delivered a remarkably stable rise in GDP. Overall, 2016 saw growth of 2%, down on 2015’s rate but in line with average growth since the last recession ended in late-2009.

“Services accounted for the lion’s share of Q4’s rise in GDP, while construction eked out a marginal 0.1% rise and industrial output stagnated. That said, the latter two readings were marked improvements on Q3, which saw falls in output of 0.9% and 0.5% respectively. 

“The growth rate in Q4 provides a decent jumping off point for growth in 2017. Even if output flat-lines in each quarter, 2017 will still see GDP rise by 0.9%.

“In practice, the economy seems set to continue growing, albeit at a slower pace as a result of the activity depressing effects of higher inflation. But the upside risks to our current forecast of a 1.3% rise in GDP are arguably rising.”

Andrew Sentance, senior economic adviser at PwC, said: “The UK economy performed slightly better than expected in the final quarter of last year. GDP was up 0.6% on the previous three months, creating a respectable annual average growth rate of 2% for the year as a whole.

“Strong consumer spending has supported growth over the past three months and this has more than offset the dampening impact of Brexit uncertainty in investment. As a result, the services sector has continued to be the driving force for the UK economy in recent quarters. The world economy has also helped economic growth with positive indicators in all the main economic regions – Europe, North America and Asia.

“2017 will be a more testing year for the UK economy as consumer spending will be squeezed by rising inflation. Despite this, we should expect the underlying resilience of the UK economy and healthy global growth to support economic activity in the year ahead. That should enable GDP to grow by close to 1.5% in 2017 even though Brexit uncertainties will have a dampening effect.”

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