Growth dipped in third quarter following Brexit vote

27 Oct 16

Economic growth fell in the first three months following the UK’s vote to leave the European Union, according to data published by the Office for National Statistics – but the preliminary estimate concluded output had been “broadly unaffected” by the vote.

The figures for the third quarter of 2016 show that the economy grew by 0.5%, with strong expansion of the service sector offsetting falls in other industrial groups. This is compared to 0.7% growth in the second quarter of the year, although the expansion from July to September is stronger than had been forecast.

The ONS said that economic output from the service sector increased by 0.8% over the period, compared to decreases in construction output (1.4% down), agriculture (0.7% lower) and production, including manufacturing, which fell by 0.4%. This preliminary estimate is likely to be revised once more data becomes available.

Responding to the figures, Nina Skero, the managing economist at the Centre for Economics and Business Research, said growth had so far been undisturbed by Brexit vote on 23 June, but this was unlikely to be the case for much longer. 
“Given that the preliminary release does not provide a detailed data breakdown, it is difficult to say at this stage what drove the third quarter performance,” she said.

“Recently, consumer spending has been a source of strong economic growth and it is likely that this trend continued in the third quarter – but not for long beyond that. As a weaker pound contributes to higher import prices and in turn a sharp rise in inflation, consumers will feel the squeeze. A slight rise in unemployment and lower consumer confidence will also encourage households to cut back on spending, further taking the steam out of consumer spending.”

She added that uncertainty over the outcome of the UK’s negotiations to leave the European Union would harm investment and employment in the coming quarters while potential upsides, such as a reduced regulatory burden or more favourable trade agreements with faster growing parts of the word are unlikely to be realised in the short term.

“Although today’s GDP data show the economy shrugging off Brexit, negotiations to leave the EU have not even begun yet and any material changes are yet to take place. As such, Cebr expects GDP growth to stand at just 0.7% in 2017 and 1.3% the year after,” she added.

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