U.K. Economy grows 0.5 % despite Brexit Vote
The U.K. economy slowed only slightly in the three months following voters’ decision to exit from the European Union, according to an official estimate Thursday that confirms the U.K. weathered the surprise referendum result better than many expected
In the most comprehensive snapshot of the U.K. economy since the Brexit vote, the Office for National Statistics said the economy expanded 0.5 % in the third quarter compared with the second, an annualized rate of 2 %.
Sterling rose slightly against the dollar and the euro immediately after the announcement but then returned to its previous levels.
Third-quarter growth was above expectations of analysts polled by The Wall Street Journal, who forecast an expansion of 0.4 % on the quarter. Still, it was down compared with the previous three months, when the economy grew 0.7 %, an annualized rate of 2.7 %.
The figures of October 27 confirm the picture of the economy painted by a series of economic indicators and surveys since the Brexit vote, which described a swift recovery in activity after an initial post-referendum shock.
But economists caution that a deeper slowdown may still lie ahead, as uncertainty over the economy’s future ties to the EU weigh on business investment and a revival in inflation squeezes consumers’ wallets.
The ONS said that growth in the third quarter was driven by services, which accounts for some 80% of the U.K. economy. Business services, government services, retail, transport and communication all recorded growth in output.
Among the fastest-growing sectors was film and television, where activity was boosted by the success of summer blockbusters including “Jason Bourne” and the latest instalment in the “Star Trek” franchise, the ONS said.
Services’ strength offset contractions in industrial production, construction and agriculture, data showed.
The run of better-than-expected data, capped by the report of October 27, have defied some of the gloomier forecasts for post-referendum growth put forward ahead of June’s referendum.
Andrew Churchill, managing director of JJ Churchill Ltd., a Market Bosworth, England-based firm that manufactures blades and other high-precision components for the aerospace industry, said the Brexit vote hasn’t directly affected his business so far. His firm signed two contracts not long after the referendum, and Mr. Churchill said he doesn’t intend to pull back on investing and hiring while the U.K. and EU hammer out a divorce settlement. Prime Minister Theresa May has said she intends to serve formal notice of withdrawal by March, a move that will start the clock ticking on at least two years of exit talks. “Whatever the outcome of those negotiations, we have to continue to improve,” Mr. Churchill said.
Yet many economists are cautious about the prospects for 2017. So too is the Bank of England, which has pencilled in growth of just 0.8 % for next year as a whole. Officials led by Gov. Mark Carney will decide next week whether to cut their benchmark interest rate closer to zero. Investors and economists expect them to hold off, for now.
Among economists’ concerns for next year: That a sharp slide in the pound drives up inflation, squeezing consumer spending. Another worry is that uncertainty over the U.K.’s future ties to the EU depresses business investment. Surveys suggest that, unlike Mr. Churchill, many executives are putting spending plans on hold.
The ONS’s preliminary estimate of gross domestic product is based on less than half the data included in its third and final report, and is frequently revised.