U.K. Growth Shows an Economy Resilient to Brexit

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at 2016.10.27
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U.K. Growth Shows an Economy Resilient to Brexit

The U.K. economy grew faster than economists forecast in the third quarter, with services single-handedly ensuring resilience against any Brexit fallout.

The 0.5 percent expansion was better than the 0.3 percent median forecast of economists in a Bloomberg survey. Services surged 0.8 percent, offsetting declines in construction and production, its performance helped by box-office receipts for summer movies including Jason Bourne and Star Trek.

The report covers the period since the vote in June to leave the European Union, as Britain came to terms with a decision that sparked a change of prime minister, a sharp drop in the pound, price spats between companies and the first Bank of England interest-rate cut in seven years.

Twitter: ONS on Twitter

“There is little evidence of a pronounced effect in the immediate aftermath of the vote,” Office for National Statistics Chief Economist Joe Grice said in a statement on Thursday. He added that the economy is growing at a rate “broadly similar” to its pace since 2015.

The expansion — though slower than the 0.7 percent in the three months through June — marked a 15th straight quarter of growth. Only three of 50 economists surveyed by Bloomberg correctly predicted the number, with everyone else forecasting a weaker reading. The BOE, which revised up its estimate last month, saw a 0.3 percent pace.

Twitter: Bloomberg Brexit on Twitter

The performance may mean the Bank of England is less likely to cut interest rates again. While Governor Mark Carney has said another loosening was possible, accelerating inflation and stronger-than-anticipated growth may stay his hand.

“We believe that this reading is sufficiently strong to convince the Bank of England to refrain from easing monetary policy again” next week, said Alan Clarke, an economist at Scotiabank in London. “There is no need to panic.”

Nevertheless, with economists forecasting that the Brexit effect may take time to filter through the economy, they see growth slowing to about 1 percent next year, half the pace expected for 2016. Economists at Bloomberg Intelligence in London say there’s a chance that a BOE rate cut may only be postponed in November until early next year.

The latest data also show the imbalanced nature of growth, with services adding 0.6 percentage point to GDP. Both production and construction were a drag on growth.

Twitter: Philip Hammond on Twitter

The financial industry accounts for a large portion of services, and its future may be at risk because of Brexit.

Mark Garnier, the U.K.’s trade minister, told Bloomberg this week that global banks will probably lose their current legal rights to provide services in the EU as Britain splits from the bloc. He said that an alternative system that’s been floated, known as equivalence, was probably not going to be “good enough” for banks.

“The fundamentals of the U.K. economy are strong,” Chancellor of the Exchequer Philip Hammond said in a statement after the data were released. “The economy will need to adjust to a new relationship with the EU, but we are well-placed to deal with the challenges.”

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Published at Thu, 27 Oct 2016 08:30:42 +0000

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