How seven City analysts reacted to the surprise rise in UK GDP
Scaremongers were once again proved wrong this morning, after it was revealed the UK's economy grew by 0.5 per cent in the third quarter of 2016.
The figure, by the Office for National Statistics, was much higher than the 0.1 per cent analysts had expected.
Here's how the City reacted:
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1. "Brexit will be more of a gradual drag"
John Hawksworth, chief economist, PwC:
“The two strongest sub-sectors in the third quarter were transport and communications and distribution, hotels and restaurants. The latter in particular reflects continued strong consumer spending through the summer and early autumn, but this could be eroded over the next year as the weaker pound pushes up import prices and squeezes real household spending power.
“Overall, it looks like the economic impact of Brexit is more likely to be a gradual drag on growth over the next few years as negotiations with the EU proceed, rather than a short, sharp shock.”
2. "The picture could be a lot worse"
Russ Mould, investment director, AJ Bell:
“Overall the picture could be a lot worse, although the chief victim so far remains sterling.
“August’s interest rate cut did nothing to support the currency and in some ways Bank of England governor Mark Carney may have been pleased to see sterling swoon. The weak currency could help exports, boost competitiveness and growth and stoke the inflation he has been trying and failing to stoke with low rates and quantitative easing, in the hope it would help to erode the UK’s still-rising sovereign debt mountain."
3. "As sterling weakens, businesses have been hiring"
Richard de Meo, managing director, Foenix Partners:
"The first true post-referendum growth print… reminds markets of the paradox that as sterling weakens on the back of fears of politics hurting the economy, businesses have been hiring and people have been spending and annualised growth has risen to 12-month highs of 2.3 per cent.
"This tops a run of strong data that has seen PMIs, employment, inflation and now growth figures all point to a reassuring resilience in the economy – if sterling proves uninspired, this should be seen as final confirmation that Downing Street, not data, is the pound’s only driver."
4. "Do not overlook the lingering sense of uncertainty"
Geoffrey Yu, head of UK investment at UBS Wealth Management:
“As was anticipated, today’s figures reveal that the immediate post-Brexit shock has failed to translate into a wider shock to the UK economy. Anecdotal evidence supports the view that we’re yet to see any meaningful damage as a result of the Brexit vote, at least in the short-term.
“Of course, we should not overlook the lingering sense of uncertainty. Though the economy has fared better than initially feared, we expect that economic growth will slow down relative to the early part of this year.”
5. "The figure will eventually be revised down"
Samuel Tombs, chief UK economist, Pantheon Macroeconomics:
The preliminary estimate… confirms that the referendum result did not send the economy in to shock, but the adverse consequences of the Brexit vote will become increasingly clear as inflation shoots up and firms postpone investment over the coming quarters.
"The moderate rise in GDP, which matched the average growth rate of the previous four quarters, entirely depended on a 0.8 per cent quarter-on-quarter rise in services output… Although GDP growth matched our forecast, we suspect that the figure eventually will be revised down; the preliminary estimate relies on less than half of the data content that will be available for the final estimate, and revisions usually move the official data closer to the surveys, which have pointed to negligible growth.
6. "Twists and turns are coming"
Naeem Aslam, chief market analyst at Think Markets UK
"The number came better than expected. But manufacturing and industrial sector have performed badly and this is what we want to emphasise. It is certainly too early to call that Brexit effects are over or they will not have an impact on the UK’s growth.
"The resilience picture may continue, but our chief concern is towards the investment and business investment and foreign investors are very hesitant in this space. In other words, we can describe the Brexit as if you are going to see a film and you have only seen five minutes of this film. There is still a lot of this film left and there will be many twists or turns coming so do not make the decision just yet."
7. "Very good news"
Ben Brettell, senior economist, Hargreaves Lansdown:
"It’s difficult to interpret today’s figures as anything other than very good news for the UK economy. Some will be concerned about the absence of any rebalancing of the economy away from the ever-dominant services sector… However, I don’t see this as a problem.
"In an increasingly global economy, individual countries need to specialise in industries where they have a comparative advantage. It’s clear to even the most casual onlooker that the UK has a comparative advantage in services, and therefore it shouldn’t come as a surprise that ever more resources are allocated to that sector of the economy."