Wednesday, January 19

UK economy grows since Brexit vote



The UK economy grew by 0.5% in the three months after the Brexit vote, the Office for National Statistics has said.

The figure for July to September was down from the 0.7% growth recorded in the second quarter of 2016 – the months before Britain voted to leave the European Union.

But it is more robust than many economists had expected – and stronger than the 0.2% forecast last month by the Bank of England (BoE).

Sky’s Economics Editor Ed Conway said: “These are relatively punchy numbers. I think these numbers will be something of a surprise to the City and they will be reassuring to many people who thought that Brexit decision was going to hit confidence, spending and activity in the economy.”

The higher-than-expected GDP figure was driven by the services sector – which accounts for more than 78% of the UK economy – and for which figures showed output grew by 0.2% in the three months.

It helped to offset a 1.4% drop in construction – the steepest fall in construction since the third quarter of 2012.

Manufacturing was also down 1%, while production fell 0.4% and agriculture slipped 0.7% in the third quarter.

The ONS said there was little evidence of a “pronounced” impact on the economy in the immediate fallout of the June referendum result.

Chancellor Philip Hammond, who is due to announce his first Autumn statement next month, said the results showed the British economy’s “resilience” to the challenges the UK faces while it negotiates its exit from the EU.

“The fundamentals of the UK economy are strong,” he said.

“The economy will need to adjust to a new relationship with the EU. I am confident that our strong links with the rest of the world will stand us in good stead as we deliver an economy that works for everyone.”

The UK economy’s surprise resilience in the third quarter will cast doubts over the Bank of England moving to cut interest rates again in November.

However, British households are likely to be feeling the pinch from higher inflation, which hit its highest level for nearly two years in September, at 1%, and is expected to rise further as the plunging pound ramps up costs.

Mike Spicer, director of economics at the British Chambers of Commerce (BCC) welcomed the growth in the economy, but warned of the drop in industrial output overall.

He said: “Although many manufacturers saw a bounce this summer, in part from the lower exchange rate, this was not enough to prevent a contraction in industrial output overall. Many have found themselves on the wrong side of currency movements – facing increased costs for imported components.

“Boosting business confidence must be a key task for government in the months ahead.”

Rain Newton-Smith, CBI chief economist, said: “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 next month’s Autumn statement which will get firms investing now and lift productivity in the future across all UK regions.”

Roy Taylor, managing director of Malthouse Engineering, a steel-cutting factory in Birmingham, said the figures were “heartening”.

He told Sky News: “The day after Brexit, 24 June, we saw an immediate reduction in our order take – and that has continued. There has been a little bit of improvement in the last few weeks, but nothing dramatic.”

He added: “We need more stability, more growth in the economy… because people still want British products.”