UK economy shows no sign of Brexit effect

Consumers and businesses increased their spending in the third quarter as the U.K. economy registered a resilient performance following the Brexit vote.

Household spending rose 0.7 percent from the second quarter and business investment increased 0.9 percent, the Office for National Statistics said on Friday. Growth overall was unrevised at 0.5 percent, with trade providing the strongest contribution.

The report covers the first full quarter of gross domestic product since Britons upended U.K. politics and roiled financial markets by voting to leave the European Union. While there are few signs of any significant effect for now, growth is expected to slow next year.

In its twice-yearly review, the Office for Budget Responsibility on Wednesday slashed its 2017 forecast to 1.4 percent from 2.2 percent. Uncertainty will lead firms to delay investment while the falling pound squeezes consumers by pushing up the cost of imports, it said.

Surprise Increase

“Investment by businesses held up well in the immediate aftermath of the EU referendum, though it’s likely most of these investment decisions were taken before polling day,” said ONS statistician Darren Morgan. “That, coupled with growing consumer spending fuelled by rising household income, and a strong performance in the dominant service industries, kept the economy expanding broadly in line with its historical average.”

The jump in business investment surprised economists, who had widely predicted a decline as the Brexit vote took its toll.

“In light of Brexit there was a case for uncertainty holding back investment,” said Alan Clarke at Scotiabank in London. “However, things are never black and white. Projects to build planes, ships, buildings etc. will have been signed off 12-18 months ago and that activity won’t shut off overnight.”

The increase in consumer spending was down from 0.9 percent growth between April and June but in line with the average of recent quarters.

Net trade added 0.7 percentage point to GDP in the three months through September as exports rose 0.7 percent and imports fell 1.5 percent. That represents the biggest contribution from trade since the start of the 2014 and the first this year.

An index of the dominant services industry rose 0.2 percent in September, leaving output 0.8 percent higher on the quarter. Industrial production and construction declined. GDP growth overall was down from 0.7 percent in the second quarter.