Brexit latest: Business investment holds up in third quarter

Capital spending by firms rose 0.9 per cent in the three months to September

Ben Chu
Friday 25 November 2016 12:34
Firms are still expected to cut back sharply on investment next year
Firms are still expected to cut back sharply on investment next year

Business investment held up better than expected in the wake of the Brexit referendum vote, the latest figures from the Office for National Statistics show.

Capital spending by firms rose 0.9 per cent in the three months to September, higher than the 0.6 per cent City of London analysts had been expecting.

Holding up

The overall GDP growth figure was also confirmed by the ONS at 0.5 per cent, down from 0.7 per cent in the second quarter but still reasonably robust growth in the wake of the 23 June referendum vote that many economists had expected to push the UK back into recession.

The main contributor to that growth on the expenditure breakdown was household consumption which increased by 0.7 per cent.

However, the ONS pointed out that many of the decisions taken by firms to invest in the third quarter would have been taken in advance of the Brexit vote in June.

And both business investment and household consumption are still widely expected by economists to take a major hit next year due to uncertainty about Britain’s future trade relations with the rest of the EU and the looming hit to real incomes from a spike in inflation resulting from the sharp depreciation of sterling.

Surveys from the Bank of England and other monitoring groups point to an impending slowdown in investment by firms.

Forecasts from the Office for Budget Responsibility this week as part of the the Autumn Statement imply that average real wage growth this decade will be the weakest since the early 1900s.

What does the falling pound mean for you?

The OBR also pencilled in an overall contraction in business investment both this year and next year.

“We find it hard to get too excited,” said Elizabeth Martins of HSBC, referring to the latest positive official figures.

“While the post-Brexit story is one of ‘so far so good’ we still think a slowdown is in the pipeline further out”.

Howard Archer of IHS Global Insight said that “the fundamentals for consumers will progressively weaken over the coming months” due to inflation and a desire by firms to keep down employee pay.

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