Economy grows 0.5% post-Brexit vote

The UK’s economy grew faster than anticipated in the three months after the Brexit vote, according to data released by the Office for National Statistics (ONS) showing a 0.5% increase in the July to September period, the first full quarter’s results since the referendum in June

The rate of increase is below the 0.7% recorded in the previous quarter, but above analyst predictions that the vote to leave the EU would see the economy falter with growth dropping to around 0.3%.

In its analysis the ONS said: ‘The pattern of growth continues to be broadly unaffected following the EU referendum with a strong performance in the services industries offsetting falls in other industrial groups.’

According to the Q3 2016 figures, the services industries increased by 0.8%. In contrast, output decreased in the other three main industrial groups with construction decreasing by 1.4%, agriculture decreasing by 0.7% and production decreasing by 0.4%, within which manufacturing decreased by 1%.

Growth in the transport, storage and communication industries increased by 2.2% compared with 0.6% for the previous quarter and was the main reason behind the increase in services growth between the two periods, the ONS said. This is the fastest growth in transport, storage and communication industries since the end of 2009; growth was primarily driven by the motion picture, video and TV programme production, sound recording and music publishing activities, and computer programming industries.

The ONS highlights the continued growth in consumer-focused industries. For example, retail output grew 1.8%, while output in domestic accommodation and restaurants rose 1.7%. Despite only accounting for 0.6% of the whole economy, motion picture and TV programme production activity (which includes cinema ticket sales) raised GDP growth by 0.1 percentage point, growing at a very strong rate of 16.4%.

However, the ONS results shows the performance of the construction industries have deteriorated and have started to act as a drag on headline economic growth. Construction output fell 1.4% in Q3 and subtracted 0.1 percentage point from GDP growth; this followed a 0.1% fall in output in Q2. This is the first estimate of economic growth for the period, using less than half the data that will be used for the final estimate.

Joe Grice, ONS chief economist said: ‘Today's data provide the most comprehensive picture so far of the post-referendum UK economy. While quarterly growth has fallen slightly, the economy has continued to expand at a rate broadly similar to that seen since 2015 and there is little evidence of a pronounced effect in the immediate aftermath of the vote.’

‘It is important to remember this is the first estimate, though it does reflect information already gathered from more than 37,000 UK firms.’

Welcoming the figures Philip Hammond, the Chancellor of the Exchequer, said: ‘The fundamentals of the UK economy are strong and today's data show that the economy is resilient.
‘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.’

Martin Beck, senior economic advisor to the EY ITEM Club, cautioned that ‘the economy is not out of the woods yet and is likely to face a particularly challenging period in the early part of next year when higher inflation starts to bite on the consumer.’

Despite this Beck said the services sector displayed  ‘impressive resilience across Q3’, with the consumer continuing to ‘do all of the heavy lifting’, suggesting there could be an upward revision to the ITEM Club  forecast for 2017 GDP growth, with the economy continuing to perform better than expected.

The ONS GDP preliminary estimate for July – September 2016 is here.

Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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