Growth in UK economy steady at 0.6% during final quarter of 2016

The UK economy defied expectations of a Brexit-induced slowdown and capped off 2016 with robust grow

The UK economy defied expectations of a Brexit-induced slowdown and capped off 2016 with robust growth after strong consumer spending boosted Britain's services sector. Photo: Chris Radburn/PA Wire - Credit: PA

The UK economy showed no signs of a post-Brexit vote slowdown as it ended 2016 with robust growth after strong consumer spending boosted the services sector.

The Office for National Statistics (ONS) said gross domestic product (GDP) grew by 0.6% in its initial estimate for the fourth quarter of last year, in line with 0.6% in the second and third quarters.

The increase was driven by a 0.8% rise from the powerhouse services sector between October and December, bolstered by a 1.7% jump from the distribution, hotels and restaurant industry.

Retail sales and travel agencies also underpinned services sector growth over the period, the ONS said.

Manufacturing rose 0.7% thanks to a rebound from the pharmaceutical industry, but industrial production came in flat after a 6.9% slump from mining and quarrying.

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The construction industry bounced back to grow 0.1% after slumping 0.8% in the third quarter.

Agriculture also swung back into positive territory after declining for three quarters on the bounce, expanding by 0.4% in the three months to the end of the year.

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The figures mean that GDP expanded by 2% last year, only a slight slowdown from 2.2% in 2015.

Darren Morgan, head of GDP at the ONS, said data showed the economy ended 2016 with “steady growth” for the third consecutive quarter.

“Strong consumer spending supported the expansion of the dominant services sector and, although manufacturing bounced back from a weak third quarter, both it and construction remained broadly unchanged over the year as a whole.”

GDP’s fourth-quarter rise was above economist expectations of 0.5%, with many predicting the UK economy would be pegged back by slowing retail sales and uncertainty surrounding the Brexit vote.

Previously released data showed retail sales volumes in December fell at their fastest rate in nearly five years, with shoppers less inclined to buy clothing, footwear and household goods, although higher prices helped support the value of sales over the key Christmas trading period.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the economy’s “brisk growth” in the final quarter had “all the hallmarks of being driven by an unsustainable consumer spending spree”.

“The pick-up in inflation and slight decline in employment in the fourth quarter suggest that real households’ incomes were no higher than in the third quarter, so consumers appear to have turned to debt to spend more,” he added.

In December, the Bank of England kept interest rates on hold at 0.25% and said cracks were beginning to show in the business sector as firms put investment decisions on hold.

The bank had pencilled in growth of 0.4% in the fourth quarter in a more gloomy assessment of the economy’s performance.

Chief among the bank’s concerns will be the build-up of inflation, which jumped to a two-and-a-half year high in December at 1.6% and is expected to surge higher as sterling’s slump bumps up prices.

Governor Mark Carney said last week that the Bank will tighten its focus on ballooning household debt as consumers continue to spend in the face of a financial squeeze from rising inflation.

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