ONS says consumers kept spending and business investment beats forecasts, defying predictions of slowdown.
British businesses continued to invest and consumers carried on spending in the months following the Brexit vote, defying predictions that a wave of uncertainty would hit economic activity.
In the first official estimate of how firms’ spending fared after the referendum, the Office for National Statistics said business investment rose 0.9% in the July-to-September quarter. That was only a small slowdown from 1% growth in the previous quarter and beat forecasts for 0.6% growth in a Reuters poll of economists. The figures echoed business surveys suggesting companies have shrugged off the shock of the referendum result for now.
The ONS confirmed its earlier estimate that GDP expanded 0.5% in the third quarter, only a small slowdown from 0.7% growth in the second quarter and stronger than most economists had predicted in the immediate aftermath of the referendum result. But there were warnings the brunt of the Brexit vote would be felt next year as the weak pound stokes inflation and as negotiations over leaving the EU begin.
There was also a contribution to growth from net trade – the difference between what the UK exports and imports. That came as imports fell but exports grew, probably helped by the weakness of the pound since the Brexit vote, which makes UK goods more competitive in overseas markets.
But the data also confirmed earlier estimates showing that the construction sector had fallen into a technical recession, contracting for two straight quarters, while output was down for manufacturers and the wider industrial sector.
The ONS said that since the referendum in June, GDP growth had been in line with recent trends, suggesting “limited effect so far” from the referendum.
Darren Morgan, head of GDP at the ONS said: “Investment by businesses held up well in the immediate aftermath of the EU referendum, though it’s likely most of those investment decisions were taken before polling day.
“That, coupled with growing consumer spending fuelled by rising household income, and a strong performance in the dominant service industries, kept the economy expanding broadly in line with its historic average.”
Economists were quick to warn the recent pace of growth would be hard to sustain. The government’s independent forecasters, the Office for Budget Responsibility, predict growth will slow to 1.4% in 2017 from 2.1% this year as business investment slows and as incomes are squeezed by higher living costs. Inflation is expected to pick up because the weaker pound makes imports to the UK more expensive.
The data company IHS Markit said its surveys pointed to the firms’ and households’ resilience continuing into the final quarter of this year. But it too was cautious about the year ahead.