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UK Economy Shows No Sign of Brexit Hit as Spending Rises

Published on Nov 25 2016 2:45 PM in Retail tagged: Retail / UK / Sales / Brexit / Spending

UK Economy Shows No Sign of Brexit Hit as Spending Rises

Consumers and businesses increased their spending in the third quarter as the UK economy registered a resilient performance following the Brexit vote.

Household spending rose 0.7% from the second quarter and business investment increased 0.9%, the Office for National Statistics said on Friday. Growth overall was unrevised at 0.5%, with trade providing the strongest contribution. A separate report from the Confederation of British Industry showed retail sales grew at their fastest annual pace in more than a year in November.

The ONS report covers the first full quarter of gross domestic product since Britons upended UK politics and roiled financial markets by voting to leave the European Union. While there are few signs of any significant effect for now, growth is expected to slow next year.

In its twice-yearly review, the Office for Budget Responsibility on Wednesday slashed its 2017 forecast to 1.4% from 2.2%, saying uncertainty will lead firms to delay investment while the falling pound squeezes consumers by pushing up the cost of imports.

“Investment by businesses held up well in the immediate aftermath of the EU referendum, though it’s likely most of these investment decisions were taken before polling day,” said ONS statistician Darren Morgan. “That, coupled with growing consumer spending fueled by rising household income, and a strong performance in the dominant service industries, kept the economy expanding broadly in line with its historical average.”

The jump in business investment surprised economists, who had widely predicted a decline as the Brexit vote took its toll.

“In light of Brexit there was a case for uncertainty holding back investment,” said Alan Clarke at Scotiabank in London. “However, things are never black and white. Projects to build planes, ships, buildings etc. will have been signed off 12-18 months ago and that activity won’t shut off overnight.”

The increase in consumer spending was down from 0.9% growth between April and June but in line with the average of recent quarters.

Pound Effect

The CBI said its monthly retail sales index rose to 26 in November -- the highest since September 2015 -- and stores anticipate another gain next month. They may be getting a boost from overseas visitors taking advantage of the weak pound, economists say.

The exchange rate may also be starting to boost trade by making British exports cheaper and imports more expensive. Net trade added 0.7 percentage point to GDP in the three months through September, the biggest contribution since the start of the 2014 and the first this year. Exports rose 0.7% and imports fell 1.5%.

An index of the dominant services industry rose 0.2% in September, leaving output 0.8% higher on the quarter. That more than offset declines in industrial production and construction. GDP growth overall was down from 0.7% in the second quarter.

News by Bloomberg, edited by ESM. To subscribe to ESM: The European Supermarket Magazine, click here.

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