GDP growth holds up post-referendum

Subscribe to Campaigning blog feeds

Published

The UK economy is so far showing resilience following the Brexit vote. GDP growth came in at 0.5% in the three months to September, slightly slowing from 0.7% in the second quarter but far above market expectations of a slowdown or a recession in the immediate aftermath of the referendum.

 

The growth performance was driven by a solid expansion in services, which accelerated to 0.8% in the three months to September from 0.6% in the previous quarter. This more than offset the drop in the other sectors of the economy.

2016-10-27-GDP-Q3-sectors-contrib  

In particular, manufacturing was a major drag on GDP growth, contracting by 1% in the three months to September. Rather than a post-Brexit collapse, the trend suggests manufacturing is sliding back after an outstanding, six-year high growth performance in the second quarter. Indeed, pharmaceuticals and transport equipment showed the most negative contributions after robust growth in the second quarter.

2016-10-27-Manuf-growth-and-contribution  

While GDP figures largely surprised to the upside, they tell us little about what’s coming next. Yet we know that risks remain skewed to the downside, both for GDP and manufacturing. The gradual pickup in CPI inflation will squeeze households’ disposable income and weigh on consumer spending, but the trend is more likely to materialise over the course of next year. Similarly, business investment is likely to contract as a result of heightened uncertainty on the UK’s relationship with the EU, but a major collapse is unlikely in the short term as companies continue to do "business as usual" for the moment. On the other hand, the depreciation in Sterling means that net trade should be less of a drag on GDP.

 

Author

This person has now left EEF. Please contact us on 0808 168 1874 or email us at enquiries@eef.org.uk if you have any questions.

Other articles from this author >
MOTH spotlight Listen to 'Manufacturing on the hop'

Get the latest on the state of the manufacturing industry in this regular podcast with EEF Chief Economist Lee Hopley.

Listen now>
Online payments are not supported by your browser. Please choose an alternative browser or make payments through the 'Other payment options' on step 3.