United Kingdom economy unexpectedly picks up speed but Brexit effect still felt

Jeannie Matthews
January 26, 2018

ONS head of GDP Darren Morgan said: "The boost to the economy at the end of the year came from a range of services including recruitment agencies, letting agents and office management".

The ONS estimates that services, which account for around 80 per cent of the economy, expanded by 0.6 per cent in Q4, up from 0.4 per cent previously.

Britain's economy grew by 0.5 per cent in the final three months of 2017, beating expectations and continuing steady growth since the Brexit vote.

On a yearly basis, the economy expanded 1.5%, slightly faster than the 1.4% growth economists had forecast.

'Other services - notably consumer facing sectors - showed much slower growth.

That is up from 0.4 per cent in the previous quarter - bringing overall GDP growth for 2017 to 1.8 per cent.

Growth still looks lacklustre - and somewhat unevenly distributed - with the year-on-year figure of 1.5% the weakest since the first quarter of 2013.

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Production industries grew by 0.6%, boosted by the second consecutive quarter of strong growth in manufacturing.

"Undoubtedly the United Kingdom is being given a lift by the strength of global (notably euro zone) demand and comes after BoE Governor Carney implied that the UK's slowdown may be more temporary than previously supposed", Peter Dixon, senior economist at German lender Commerzbank said in an email.

"Whether this year's growth comes from Britain's seemingly rediscovered mojo, or simply from the United Kingdom riding in the slipstream of a booming global economy, is moot".

He told the Today programme the longer term impact was unclear, adding: There's the prospect this year, as there's greater clarity about the relationship with Europe, and subsequently with the rest of the world, for a recoupling, if I can use that term borrowed from Gwyneth Paltrow, sort of "conscious recoupling" of the.

Mr Dixon says there are two things to highlight from fourth quarter GDP growth.

"As a central case markets should more fully price in the risk of two United Kingdom bank rate rises this year", said David Owen, chief European financial economist at Jefferies. The rate was forecast to remain at 0.4%.

Samuel Tombs of Pantheon Macroeconomics has a similar view, saying that "this is an undeniably strong report that increases the chances that the MPC follows up November's interest rate rise as soon as this summer".

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