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UK economy grows faster than expected in Q3

by International Commercial Investment on December 26, 2016

Source: RTE

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% in the three months to September, the Office for National Statistics said, revised up from an earlier reading of 0.5% that economists had expected to remain unchanged.

But growth was revised down by 0.1% in the first and second quarters of the year to 0.3% and 0.6% 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% on third quarter growth, the biggest drag since early 2012 and compared with an initial estimate that trade had offered a 0.7% 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 from a downwardly revised £22.079 billion in the second quarter.

While lower than the £27.45 billion expected by economists, it caused the deficit to rise to 5.2% of gross domestic product from 4.6% – approaching a record 6% 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% on the year but rising inflation meant that in real terms, household income growth on the year slowed to 0.3% – 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% on a quarterly basis from 0.9%.

International Commercial InvestmentUK economy grows faster than expected in Q3