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December 24, 2016

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Home » Business » Economy

UK growth stays firm in face of Brexit fears

BRITISH consumers brushed off June’s Brexit vote and drove the economy to expand faster than expected in the third quarter, but a hefty current account gap and weaker trade and investment raised warning flags for 2017.

The economy grew 0.6 percent in the three months to September, above its long-run average and beating expectations in a Reuters poll of economists who expected the Office for National Statistics to stick with its earlier estimate of 0.5 percent.

The ONS also revised down growth for the second quarter to 0.6 percent, meaning there was no slowdown at all following June’s Brexit vote — confounding predictions at the time that the “Leave” vote would push Britain’s economy into recession.

With the large services sector continuing to perform well in October, Britain’s economy looks on track to expand by more than 2 percent this year — faster than almost all other big advanced economies except perhaps the United States.

The sterling rose against the dollar after the data, having hit a seven-week low earlier in the day.

But yesterday’s figures showed no sign that the sterling’s sharp fall after the referendum had boosted exports. The picture for trade worsened markedly and growth depended more on domestic consumer demand.

“Six months after the Brexit vote, it is clear that 2017 is likely to be a challenging period for the economy, not least in assessing ‘traditional’ imbalances in the current account and the household sector,” Investec chief economist Philip Shaw said.

Economists polled by Reuters expect growth to more than halve next year to 1.1 percent.

Household spending rose at a quarterly rate of 0.7 percent in the third quarter, but household incomes adjusted for inflation fell 0.6 percent — the biggest drop since early 2014.

“With high inflation set to weigh further on spending power next year, the consumer is surely set to falter soon,” said Martin Beck, economist at consultancy EY ITEM Club.


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