UK economy grows faster than expected in Q3, no sign of Brexit hit

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London, December 23
Britain’s economy grew more strongly than
expected in the third
quarter, showing no sign of any slowdown from June’s Brexit vote, but the country’s current account
deficit rose back towards record levels.
The economy expanded 0.6 percent in the three months to September, the Office for
National Statistics said on Friday, revised up from an earlier reading of 0.5
percent that economists had expected to
remain unchanged.
But growth was revised down by 0.1 percentage points in the first and second
quarters of the year to
0.3 and 0.6 percent
respectively.
While the figures confirmed that Britain’s economy performed more robustly
than economists expected after the vote to leave the European Union, there was no sign that sterling’s
sharp fall had boosted exports.
The figures showed a markedly worse picture for trade and growth was more reliant on domestic demand than previously thought.
“Robust consumer demand continued to help the UK economy grow steadily in the third quarter of 2016,” ONS statistician Darren Morgan said.
Net trade acted as a drag of 1.2 percentage points on third quarter growth, the biggest drag since early 2012 and compared with an initial estimate that trade had offered a 0.7 percentage point boost to the growth rate.
This reflected corrections the ONS recently made to trade data due to a
miscalculation in the trade of gold.
Britain’s current account deficit widened to 25.494 billion pounds from a downwardly revised 22.079 billion pounds in the second quarter.
While lower than the 27.45 billion pounds expected by economists, it caused the deficit to rise to 5.2 percent of gross domestic product from 4.6 percent – approaching a record 6.0 percent seen in late 2013.
In the run-up to June’s referendum, Bank of England Governor Mark Carney said Britain relied on the “kindness of strangers” to meet its financing needs – something that could fade if Britain became a less attractive investment
destination.
Sterling tumbled after the Brexit vote, which most economists think should ultimately reduce Britain’s current account deficit by curbing imports, and boosting exports and the sterling returns from Britain’s overseas investments.
But some economists warn Britain could still be vulnerable if its overseas funders become nervous about their investments – particularly if it looks like Britain will end up with a bad deal in its divorce from the European Union.
Rising inflation caused by the pound’s post-referendum plunge looks set to squeeze household spending and economists said they still expected business investment to slow.
Compensation of employees rose at its fastest annual rate since the second
quarter of 2013, up 4.5 percent on the year but rising
inflation meant that in real terms, household income growth on the year slowed to 0.3 percent – its weakest rate in two years.
Households ate into their savings, with the savings ratio dropping to its lowest since the third quarter of 2008.
Growth in business investment slowed, revised down to 0.4 percent on a
quarterly basis from 0.9 percent.

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