Growth with increased UK productivity defies forecast

With the manufacturing sector returning to expansion the British economy picked up going into the fourth quarter with GDP increasing by 0.4 per cent, according to Office for National Statistics (ONS). The growth has defied the prediction of a slump by those who had voted in the referendum for Britain to remain in the EU.

The country has enjoyed five consecutive quarters of economic growth since the June 2016 vote.

Britain’s manufacturers had recorded a weak second quarter, with output actually falling, but the sector returned to growth expanding by one per cent taking the growth to 1.9 per cent since the Brexit vote.

Output from the dominant services sector grew in the third quarter by 0.4 per cent, the same rate as the previous quarter.

A strong performance in computer programming, motor trades and the retail trade ensured it was the main driver of growth overall.

However, the construction industry, often seen as a bellwether for the broader economy, contracted for the second quarter in a row.

The growth of the economy ridicules the claims by former chancellor George Osborne — a staunch supporter of ‘remaining’ in the EU — in the runup to the referendum that the country would plunge into an immediate yearlong recession if ‘Leave’ won.

The growth figures allowed the Bank of England (BoE) to justify raising the interest rates for the first time in a decade, undoing the emergency cut announced last August following the Brexit vote.

Seeing the figures, Peter Dixon, economist at Commerzbank had said before the recent rate increase: “There is nothing standing in the way of the MPC (Monetary Policy Committee) acting on the message which it has been giving to the market since September that a near-term rate hike is warranted.” The move by the BoE to have increased the interest rate to 0.5 per cent from the all-time low of 0.25 per cent is seen as a boon to savers who have been forced to endure punishingly low returns on their cash, as it may increase the payments they earn from bank accounts.

However, millions of mortgage borrowers will see their monthly costs go up at once.

Lloyds Bank chief executive Antonio Horta-Osorio was among those hailing the solid growth in recent months.

He said the economy ‘remains resilient’ and he expects to see the same levels of growth continue into next year.“It’s true you see some pressure on real wages but it is also true the weak pound will boost exports and income from assets.

Levels of employment have never been so high,” he said.

The increased growth will also have been greeted with a sign of relief by beleaguered Chancellor Philip Hammond as it offers extra room for manoeuvre as he prepares for the Autumn Budget (tomorrow) on November 22.

He said: “We have a successful and resilient economy which is supporting a record number of people in employment.” Adding: “My focus now, and going into the Budget, is on boosting productivity so that we can deliver higher-wage jobs for people across the country.”

Looking into the data provides an element of satisfaction from the growth throughout the UK and particularly in the capital city.

An excellent study by a research group at the London School of Economics looks at the difference in economic activity in varying parts of the UK.

The findings are intriguing and sometimes betray conventional thinking. For instance, the financial sector spans a greater section of the UK than generally thought, and is “far less London-centric than the creative industries”. Less surprising is central London’s impressive level of productivity — the city is the only part of the country to match German rates of output per worker.

There are other productivity too.

In Greater Manchester, for example, and around Aberdeen where the energy industry continues to plug away despite low oil prices.

Another is the area heading west from central London towards Bristol.

This part is “the UK’s productivity engine”. Separate statistics that chart productivity levels specifically among SMEs also show strength in the area immediately west of the capital city.

Throughout much of the rest of the UK productivity levels are extremely poor.

However, the existence of bright spots shows that one does not necessarily have to look abroad to examine the factors behind highly-productive local economies. pockets of high