The U.K. economy continued to defy the critics who predicted a derailed expansion in the wake of Brexit. The first official estimate of the fourth quarter GDP showed that the economy grew by over 0.6% in the third quarter, slightly higher than the 0.5% median forecast of economists in a Bloomberg survey.
However, all is not well with Europe’s second largest economy. The growth has been steadily declining. The economy, which had registered a growth of 3.1% in 2014 and 2.2% in 2015, has grown by a mere 2% in 2016. The growth, which is further expected to decline to just 1.4% this year, the weakest since 2009, could act as a curtain-raiser for an economic slowdown. This could prompt the government to increase the borrowings to over $70 billion over the next five years.
Furthermore, December, which has traditionally been a strong month for sales, witnessed a slight fall in retail spending. Experts have attributed this to the dark clouds of uncertainty that loom large over Britain’s post-Brexit relationship with the EU, which has led to some big banks saying that they will “start moving thousands of jobs away from London”.
“Every major sector of the economy grew last year, which is further evidence of the fundamental strength and resilience of the U.K. economy,” said Philip Hammond, the Chancellor of the Exchequer. “There may be uncertainty ahead as we adjust to a new relationship with Europe, but we are ready to seize the opportunities to create a competitive economy that works for all.”
The British economy has fared better than what was predicted in the wake of the vote to leave the European Union in June last year. However, latest data points to its over-reliance on one sector. The declining value of the pound, which is still 15% down against the dollar vis-à-vis the referendum day, is expected to push up inflation, thereby squeezing real income and weakening consumer support. The decreasing value of the pound has been working as a double-edged sword, boosting British exporters on the one hand and hurting consumers back home on the other. Prices of consumer goods are going up as a result.
Prime Minister Theresa May intends to start the formal talks on leaving the EU by March-end. Economists are skeptical about the effects of this decision as they believe that it will hurt trade in the long run.
May is meeting President Donald Trump at the White House on Friday, and hopes to start the discussions concerning a future trade deal between the two allies. For his part, Trump has promised to give the U.K. a preferential treatment for a trade deal. However, the experts have warned that a deal will take years to materialize, assuming that there is one.
BOE Governor Mark Carney, although positive about a bright short term, has also expressed his concerns about an economic meltdown in 2017. He has, however, hinted at the BOE raising its forecasts in February at its next policy decision.