The Strategist

Britain's GDP grows in spite of forecasts

10/28/2016 - 15:24

Despite negative predictions of experts after the Brexit referendum, the country's economy has grown in the third quarter. The G20 summit in July assessed Brexit as the most significant threat to growth of the global economy since the crisis of 2008-2009. However, the country’s GDP increased by 0.5%, which was above the average forecast of analysts in Bloomberg of 0.3%. yet was slightly lower than in April-June.

"The economy continued to grow at a rate similar to that observed in 2015, an apparent effect did not appear immediately after the vote," - said Joe Grice, Executive Director of the Office for National Statistics, commenting on the agency’s data on growth of UK GDP by 0.5% in the third quarter (growth was 0.7% in the second). Sustainability GDP growth contributed to growth in the services sector by 0.8%. In particular, this relates to growth of retail trade turnover and IT services, and box office results of movies such as "Jason Bourne" and "Star Trek Beyond".

At the same time, GDP growth was rather unbalanced. Share of services in GDP has grown by 0.6%, while manufacturing and construction in the third quarter slowed the economy down. Experts say that this imbalance is potentially dependent on political relations between the UK and European countries. "Fundamentals of the UK economy are strong," - said Finance Minister Philip Hammond after the data was released. "The economy will have to adjust to a new relationship with the EU, but we can cope with the difficulties," - noted the official. 

The largest mortgage lender, Bank Lloyds Banking Group, yesterday became the first major British bank to confirm Brexit hasn’t had much impact on demand or corporate activities. The bank's profit for the third quarter amounted to £ 1.9 billion from £ 1.97 for the same period a year earlier. At the same time, Head of the bank Antonio Horta-Osorio is sure that counteracting long-term economic downturn requires investment growth.

Ryan Bourne, Head of Public Policy at the Institute of Economic Affairs, said that institutions which predicted the referendum’s serious impact on the economy should just "accept it". Their estimates were a "wildly inaccurate selection of short-term forecasts based on estimates of alleged uncertainty’s effects on low growth potential and expectations", - he said.

Back in August, some economists predicted that the would UK enter a recession after the vote on 23 June. However, according to the latest data, the housing market is on the rise and is characterized by high demand for mortgages. Shares of Lloyds, which fell by about a quarter after the referendum, were 1% higher on Wednesday, 26 October.

Also in July, analysts from Standard & Poor's predicted that Brexit would take away from the country’s economy 1-1.2% growth over the next two years, while the euro zone might be short of 0.8% of GDP. They also stated that weakening of the pound could partly compensate for the decline by helping to increase exports and stimulating tourist spending. Car production in the UK rose by 0.9% in September thanks to growth of exports, which offset fall in the domestic demand. Volume of car sales abroad increased by 5% and amounted to more than 75% of total production.