Joe Brewer Consulting Partner

UK Economy defies Brexit

So far, it looks like the UK economy has managed to defy Brexit woes to give us strongth growth in the final quarter of 2016.

GDP figures released just last week reveal that the UK economy grew beyond economists' expectations in Q4 of 2016:

GDP: Quarter on quarter growth

That means that the economy grew by 2% in 2016 as a whole, less than the 2.2% growth achieved in 2015.  The graph below releals that growth has slowed year on year, with growth expected to slow down even further in 2017 - some economists predict GDP growth to be between 1.1% and 1.5%* in 2017.  *Source: Financial Times

Source: Office for National Statistics

 

GDP: Year on year growth



Source: Office for National Statistics

While the latest growth figures are good news for the economy, there are some hints of instability.  The main driver of growth in the economy has been the services sector and consumer spending, and while that's welcome, we can't expect it to be as strong in 2017.

Changes in exchange rates are pushing inflation upwards, as you can see from the graph below:

Inflation: Consumer Prices Index (% change)


Source: Office for National Statistics

Inflation was 1.6% in December 2016 - the highest level in more than two years - but it's expected to increase further in 2017.  The knock on effect of this is likely to be that household incomes will be squeezed in 2017, resulting in economic slowdown.

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