UK economy unexpectedly picks up speed but Brexit effect felt

Monday, 29 January 2018 00:09 -     - {{hitsCtrl.values.hits}}

LONDON (Reuters): Britain’s economy unexpectedly picked up speed in the last three months of 2017, according to data which showed that the prospect of Brexit was still weighing on the economy, but not as heavily as once feared by investors.



Gross domestic product grew at its fastest pace of 2017, rising by 0.5% from the third quarter and beating the median forecast in a Reuters poll of economists that growth would remain at 0.4%.

But the Office for National Statistics said the big picture was one of a slower and more uneven expansion in the world’s sixth-biggest economy as it approaches its departure from the European Union in March next year.

In 2017 as a whole, growth was 1.8% compared with 1.9% in 2016, the slowest since 2012. For comparison, the International Monetary Fund expects growth of 2.4% in the euro zone last year.

Investors took the data as a sign that the Bank of England might move more quickly towards only its second interest rate hike in more than a decade.

Sterling added to its recent strong rise against the US dollar and climbed against the euro.

The Bank of England said last month it expected the economy might have slowed slightly in late 2017.

“If the UK economy does indeed struggle to move up a gear over coming months, the Bank will likely have to tread carefully when deciding whether to raise rates again this year,” James Smith, an economist with ING, said.

“We don’t expect any change in policy from the BoE in February, but a rate hike at the May meeting is an increasingly close call.”

The BoE’s rate-setters are due to announce their next decision on borrowing costs on Feb. 8.

They raised rates for the first time since 2007 in November. Most economists have said they expect the next rate hike in late 2018 but some think it could come as soon as May.

Britain’s economy grew more weakly than other big rich nations for much of last year as the impact of the 2016 Brexit vote pushed up inflation and many businesses turned cautious ahead of Brexit.

However, Britain has been helped by the recovery in the world economy last year which is expected to carry on in 2018.

Finance minister Philip Hammond described the figures as excellence, underscoring the resilience of the economy.

BoE Governor Mark Carney said on Friday Britain could start to grow more quickly later this year, if there is clarity about its future relationship with the EU.

Consumers squeezed

While recruitment agencies, letting agents and office management firms helped boost growth, companies which relied on spending by consumers had a much slower fourth quarter.

Manufacturers, who have prospered from demand spurred by the recovery in the global economy, also grew strongly.

Separate data published on Friday show\ed personal insolvencies hit a three-year high, reflecting the financial strain on many households.

Given the strength of global growth, Britain’s would have grown by about 2.5% in 2017 were it not for the Brexit vote, Kallum Pickering, an economist with Berenberg, said.

Compared with the same period in 2016, growth between October and December slowed to 1.5%, its weakest pace since the first quarter of 2013 and down from growth of 1.7% in the third quarter.

The Reuters poll had pointed to growth of 1.4%.

Friday’s data showed Britain’s dominant services sector grew by 0.6% in the fourth quarter, gaining pace after growth of 0.4% in the third quarter, the ONS said.

In November alone, services output growth was the strongest since August 2016, jumping by 0.4% from October. The ONS said it was expecting no monthly growth in services in December given the scale of November’s increase.

Industrial output slowed to show growth of 0.6% from 1.3% in the third quarter after the Forties oil pipeline, Britain’s biggest, was closed for more than two weeks in December after the discovery of a crack.

Britain’s construction sector shrank by 1.0%, its worst quarterly performance since the third quarter of 2012.

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