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........ UK economy defies fears of slowdown after Brexit vote
Official figures reveal solid growth of 0.5%, beating gloomy forecasts
A strong services sector kept the economy moving despite contraction in other sectors.
A strong services sector kept the economy moving despite contraction in other sectors. Photograph: Paula Solloway / Alamy/Alamy
Phillip Inman
Thursday 27 October 2016 09.49 BST
Last modified on Thursday 27 October 2016 18.09 BST
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Britain’s economy performed far better than expected in after the Brexit vote, with GDP growth falling to 0.5% from 0.7% in the previous quarter.
The strong showing, which defied City forecasts that growth would more than halve to 0.3%, came after the dominant services sector expanded at a faster rate in the past three months than during the period before the referendum vote.
But the figures were marred by a contraction in agriculture, construction and manufacturing that prompted business groups to urge the chancellor, Philip Hammond, to use the autumn statement next month to support measures that boost investment and productivity.
The data from the Office for National Statistics covers the three months to the end of September and is the first official verdict on how the economy has performed since Britain voted to leave the European Union.
The main boost to services came from transport, storage and communication, which grew at its fastest pace since the fourth quarter of 2009, rising 2.2% over the period in contrast to 0.6% in the second quarter.
The ONS said higher output in the film, music and TV sectors was the main driver, indicating that Britain’s creative industries sailed through the uncertainty surrounding the referendum unscathed.
The expansion of the services sector helped to offset the steepest fall in construction since the third quarter of 2012, with a slide in new housebuilding dragging the entire building industry down 1.4% between July and September.
Manufacturing dropped by 1% in the third quarter, while production fell 0.4% and agriculture slipped by 0.7%.
The figures rule out the prospect of a technical recession – defined by two consecutive quarters of contraction – in the second half of the year that was predicted by many economists before the referendum vote.
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The 0.5% rise also beat the latest forecasts from Bank of England policymakers, who were predicting at the time of the August inflation report that third quarter growth would come in at 0.1%.
Threadneedle Street is likely to use the data as a reason to delay any further stimulus to the economy until next year, placing further pressure on the Treasury to support industry.
Hammond said the figures demonstrated the resilience of the UK economy, which was “well-placed” to deal with the challenges and opportunities created by the EU referendum.
“We are moving into a period of negotiations with the EU and we are determined to get the very best deal for households and businesses. The economy will need to adjust to a new relationship with the EU, but we are well-placed to deal with the challenges and take advantage of opportunities ahead.”
Challenging the chancellor’s assessment, several City analysts warned the Brexit bounce would prove temporary.
Kallum Pickering, senior UK economist at Berenberg bank, said the resilient post-referendum performance “does not say anything about the UK’s ability to perform outside of the EU”.
He said: “The good quarter of growth merely reflects the momentum heading into the vote and the healthy underlying fundamentals after some three years of good growth. The data does not alter our long-term view that Brexit will lower UK trend growth, to around 1.8% from 2.2% per year, via less trade, migration and investment with its major market, the EU.”
Business groups also warned the chancellor that industry remained vulnerable to uncertainty after the Brexit vote, and he should open his cheque book to prevent a longer term slump in output.
Mike Spicer, director of economics at the British Chambers of Commerce, 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.”
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For this reason “boosting business confidence must be a key task for government in the months ahead”, he said.
The TUC general secretary, Frances O’Grady, said the government needed to do more to help UK manufacturing. “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.”
Britain’s economy has been growing for 15 consecutive quarters. The relative resilience of the UK economy since the Brexit vote on 23 June has largely been attributed to a willingness among consumers to keep spending, as well as strength in the services sector.
The International Monetary Fund has predicted that Britain will be the fastest growing of the G7 leading industrial countries in 2016, with growth of 1.8%. The Washington-based fund accepted that its warning of a post-Brexit-vote financial crash had proved too pessimistic.
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