UK ends 2016 with better than expected economic growth

Strong consumer spending helped the UK grow by a better-than-expected 0.6% in the final quarter of last year and by 2% for the whole of 2016.

Chancellor Philip Hammond said the official figures showed the "fundamental strength and resilience" of the economy, though he acknowledged uncertainty ahead as Brexit looms.

The annual growth figure of 2% is slightly below last year's and the second year in a row that the pace of expansion has weakened.

But the figures from the Office for National Statistics (ONS) underlined the economy's robust response to Britain's vote to leave the European Union in June - which had been expected to provide a bigger shock.

Instead strong household spending, bolstering the dominant services sector, has kept growth firing - though Bank of England governor Mark Carney has voiced doubts about how sustainable consumer-based growth may prove.

Separate figures published by the British Bankers' Association showed consumer credit growth rose accelerated in December.

But elsewhere a CBI poll showed signs of weakness in household spending, with an unexpected decline in retail sales in the weeks after Christmas, driven by a sharp fall in food sales.

The official data means that Britain's gross domestic product (GDP) has grown by a steady 0.6% in each of the last three quarters, including the two that followed the Brexit vote.

The annual growth figure of 2% confirmed a forecast by the International Monetary Fund, which had put the UK's predicted growth ahead of that of all other members of the G7 group of major advanced economies for 2016.

Mr Hammond hailed evidence that all major sectors of the economy had grown during the course of 2016, though manufacturing only inched ahead by 0.3% - after shrinking in 2015 - and construction growth slowed to 1.4%.

Instead it was services - covering a vast area of the economy from law and PR firms to hotels and restaurants and accounting for nearly four-fifths of output - that again dominated, growing by 2.8%.

The Chancellor seized on the better-than-expected headline numbers to point to a bright future for the UK.

He said: "There may be uncertainty ahead as we adjust to a new relationship with Europe, but we are ready to seize the opportunities to create a competitive economy that works for all."

Chris Hare, economist at Investec (LSE: INVP.L - news) , said: "In the months following the UK's vote to leave the EU, the economy has held up remarkably well - a far cry from the near recessionary scenario we had feared in the immediate aftermath.

"There are scant signs (yet) of a Brexit-related slowdown in the economy."

However, growth is widely expected to slow this year as the fall in the pound pushes up inflation, weakening the consumer spending power that has driven its recent strength.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "The fact is that the Brexit process is yet to start and the fundamentals for consumers are only really now starting to soften as rising inflation eats into purchasing power.

"Like a slow puncture, we suspect that the economy will gradually lose air as the year proceeds."

In November, the Bank of England forecast that GDP growth would slow to 1.4% in 2017 as inflation climbs to 2.7%.

The Bank's latest economic outlook will be published next week in its quarterly Inflation Report.