Brexit, what Brexit? UK economy grows by 0.5 per cent – slower than the previous quarter but better than economists had expected

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GDP is estimated to have grown by 0.5 per cent in the third quarter of the year, in a sign the economy has – so far – shrugged off the effects of Brexit.

The statistics from the Office for National Statistics (ONS) are the first to cover the full three months after the UK voted to leave the European Union back in June. 

Brexit-supporting politicians are expected to jump on the figures as proof that warnings about the economy prior to the referendum were just scare stories. Analysis from the Treasury predicted earlier this year that if the UK voted to leave, this quarter could see growth as low as 0.1 per cent.

The ONS said the figures were led by "strong growth in services, particularly films, retail and computer programming."

However, the results are down from last quarter, when the economy grew by 0.7 per cent. The vote to leave was two weeks before the end of that quarter and is thought to have had little effect on the figures.

Rain Newton Smith, chief economist at the CBI, told Bloomberg that she was "not that surprised… we have seen quite a lot of resilience in the economy," but that it was "too early" to judge the full impact.

The UK economy has expanded for fifteen quarters in a row.

The pound dropped by almost half a per cent this morning to $1.2202 but bounced back up to $1.225 after traders absorbed the full results.

Chancellor Philip Hammond welcomed the news and said it proved "that the economy is resilient".

However, he warned the economy would need to adjust to a new relationship with the EU, but it was "well-placed" to deal with the challenges – possibly preparing for a bumpy road ahead.

 

Crunching the numbers

Services were the only sector to grow – by 0.8 per cent. All four sub-sectors were up and this is a trend that shows no sign of slowing down. Retail output grew by 1.8 per cent, while output in domestic accommodation rose 1.7 per cent. Despite only accounting for 0.6 per cent of the whole economy, motion picture and TV production activity (which includes cinema ticket sales) grew by 16.4 per cent, boosting GDP by 0.1 percentage point on its own.

Read more: Could Star Wars have saved us from a post-Brexit slump?

Construction output decreased by 1.4 per cent. This is its biggest decline since 2012 – construction of new housing has fallen for the first time in a year.

Agriculture output decreased by 0.7 per cent.

Production output decreased by 0.4 per cent, and within that manufacturing dropped by one per cent. The price of exported manufactured goods rose by 10.2 per cent in the year to September 2016 – this is because many UK firms export a significant proportion of their goods. Energy supply fell by 3.6 per cent, while mining and quarrying increased by 5.2 per cent.

 

What were the predictions?

The growth rate was generally higher than expected – the Bank of England originally forecast a 0.1 per cent rise, and HSBC predicted a 0.3 per cent lift, saying the economy had "defied expectations of a pronounced uncertainty-driven slowdown following the referendum".

However, before the figures were released, Paul Johnson, head of the IFS, stressed that they were preliminary.

"You're trying to measure small changes in an absolutely enormous economy," he told Radio 4's Today Programme. "We shouldn't make too much of any small changes."

He said the figures did not include all of the data needed to make accurate predictions about the economy, and said that they could end up being revised.

We won't learn anything today about the impact of private investment… we won't learn anything about that for six to 12 months.

Other data released since the Brexit vote has been mixed. The unemployment rate has stayed low and consumer spending has stayed resilient, but the pound is significantly down.

Read more: IMF U-turns on Brexit warning as UK poised to be fastest growing G7 economy this year

 

Is the economy safe for now?

The next few months are where economists think the going will get tough.

Kathleen Brooks, research director at City Index, said 2017 will show the effects of higher inflation eating into wages. She added that the UK could be in line for a sharp slowdown in business investment in the coming months, which could "knock the economy seriously off course".

The Bank of England has slashed its growth forecasts for 2017 to a mere 0.8 per cent, compared with 2.2 per cent for 2016. Consultancy firm PWC is forecasting a gloomier outcome at 0.6 per cent for 2017.