Britain’s economy performed far better than expected in the wake of the UK’s vote to leave the EU but analysts are not convinced the expansion will continue as the country gets closer to leaving the EU.
Growth has slowed slightly in the three months to September to 0.5 per cent down from 0.7 per cent in the April to June quarter, according to data from the Office for National Statistics (ONS) – easily outpacing consensus estimates of 0.3 to 0.4 per cent growth.
While Chancellor Philip Hammond said the figures demonstrated the resilience of the UK economy, analysts warned the pattern of growth is unbalanced and the real impact of Brexit could come next year.
Britain’s economy has now grown for 15 quarters in a row, however this growth has largely been attributed to a willingness among consumers to keep spending, as well as strength in the services sector.
According to the ONS data, the only sector of the economy that continued to grow was services, up by 0.8 per cent. Meanwhile the agriculture, manufacturing production and construction all shrank.
The construction sector contracted by 1.4 per cent and industrial production fell 0.4 per cent, with manufacturing output down 1 per cent.
Howard Archer, UK economist at IHS Global Insight, said: “It looks certain that third-quarter growth was also heavily dependent on consumers’ willingness to keep spending, supported by still decent purchasing power and high employment.
“Consumer spending also clearly benefited from the weakened pound encouraging spending by overseas visitors to the UK. The weakened pound also supported foreign orders for UK goods and services.”
The pound has fallen by 18 per cent against the dollar since the EU referendum and has briefly hit a new six-year low against the euro last week – a weaker currency is expected to drive prices higher as it makes imports more expensive.
Sterling has benefited little from the better than expected figures on Thursday.
The pound rose to a high of $1.2273 immediately after the data was released, its highest since 20 October, before easing back to $1.2192, 0.4 percent lower on the day at market closing time.
Economists are forecasting growth will slow next year as rising inflation and weak earnings are expected to reduce consumer spending power that has been boosting the UK economy recently.
Jeremy Cook, chief economist at the international payments company World First, said: “We have called the UK consumer a hardy beast in the past and in third quarter the beast was back.”
“The services sector singlehandedly drove growth to a 15th consecutive positive quarter and while the ‘little evidence of a pronounced effect’ from the Brexit vote is being seen yet, we think that it will be as gradually obvious as the year comes to an end. The beast will tire as inflation fires arrows at its increasingly weakening hide.”
Chris Hare, of Investec, reckons fears of a so-called hard Brexit, which means leaving the single market and an end to freedom of movement, might still weigh significantly on investment spending, despite the “surprise” in domestic growth figures.
He said: “Looking forward, we do still anticipate a mild slowdown in GDP growth, particularly relative to our pre-Brexit vote projections. And recent falls in the pound, while providing a fillip to exporters, will begin to squeeze household real incomes in coming months.”
The “resilient” post – performance does not indicate anything about the UK’s ability to perform outside the EU, according to Kallum Pickering, senior UK economist at Berenberg.
He said: “Brexit hasn’t happened yet. Today’s data does not alter our long-term view that Brexit will lower UK trend growth, to around 1.8 per cent from 2.2 per cent per year, via less trade, migration and investment with its major market, the EU.”
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