Yahoo Finance UK economy accelerates to defy gloomy forecasts
Britain’s economy grew by 0.4pc in the third quarter and by 1.7pc on the year, an unexpectedly strong result which indicates the UK is proving more resilient than feared.
Sustained household spending growth helped drive the increase, as well as expansions in the accounting, recruitment and retailing sectors which were strong performers in the dominant services industry.
Manufacturers were also boosted by rising exports and sales of new car models, the Office for National Statistics said.
Economist Alan Clarke at Scotiabank said this bodes well for 2017’s overall GDP growth, defying expectations of a serious slowdown.
He had previously forecast growth of between 1.5pc and 1.6pc, but has now upgraded his forecast to 1.8pc.
“It is really quite a pleasant end to the year. The IMF got loads of headlines for downgrading their forecasts, but really they are the Johnny-come-latelies, they should have waited for this data. It is looking better than we all thought,” he said.
“If anyone had said in the immediate aftermath of the Brexit vote that the economy would only slow from 1.9pc in 2016 to 1.8pc now, we’d have been very happy with that.”
Growth will stay at similar levels next year, he believes, as the squeeze on incomes from inflation gradually fades.
ONS numbers show real household disposable incomes rose by just 0.2pc in the third quarter, while the savings ratio dipped to 5.2pc - one of the lowest levels on record over the past 20 years.
“We are addicted to shopping so we’re spending out of savings, or we are borrowing more to maintain that level of spending growth,” said Mr Clarke.
Business investment also performed steadily, rising by 0.5pc in the third quarter - in line with the expansion in the previous three months, and marking the third consecutive rise in what has historically been a reasonably volatile index.
Investment in buildings and in intellectual property drove the expansion, the ONS said.
Deloitte’s chief economist Ian Stewart hailed the positive GDP figures: "The UK’s performance has been rather better than the gloomy talk would suggest."
He added: "Overall, growth has slowed modestly, not collapsed. Talk of an end to UK growth has been somewhat exaggerated."
Mr Stewart said that, while a year ago the "near-universal view" was that unemployment would rise this year, it has instead "fallen by 150,000 and the jobless rate is at a 42 year low".
"A whopping sterling devaluation certainly has squeezed spending power and incomes, just as you’d expect, but it’s also helped reboot manufacturing output."
Combined with a recovery the eurozone, that has led to an improving trade position for the UK.
The UK’s current account deficit narrowed by £3bn in the third quarter, coming in at £22.8bn for the three months from July to September, equivalent to 4.5pc of GDP.
"That’s still by international standards very wide [but] it is considerably smaller than the 7pc we were seeing in 2015-16," said Paul Hollingsworth at Capital Economics.
He said that most of the narrowing was a result of the income balance - income flowing from assets that the UK owns abroad.
"That’s, for example, from foreign direct investment that UK companies have made in overseas territories - its income flowing from back from those," he said.
He expects economic growth overall to accelerate to 2.2pc in 2018.
