UK economy defies Brexit... for now

london — Britain’s economic growth slowed only slightly in the three months after the Brexit vote, official data showed on Thursday, defying warnings of a heavy hit and further diminishing the likelihood of the Bank of England cutting rates next week.

The economy grew by 0.5 per cent in the July-September period, less rapid than the unusually strong growth of 0.7 per cent seen in the second quarter but comfortably above a median forecast of 0.3 per cent in a poll of economists.

“There is little evidence of a pronounced effect in the immediate aftermath of the vote,” Office for National Statistics chief economist Joe Grice said, adding growth was in line with the pattern since 2015.

Britain’s dominant services industries provided all the growth, helped by a boom in the film and television sector as the latest releases in the Jason Bourne and Star Trek series hit the screens along with other blockbusters.

Sterling jumped to a one-week high against the US dollar after the data and the yield on 10-year government bonds hit its highest level since the European Union membership referendum as investors discounted the chance of a BoE rate cut on November 3. Compared with the third quarter of last year, growth picked up to 2.3 per cent, the strongest pace in more than a year, according to the preliminary figures from the ONS.

Brexit supporters said the figures backed their argument during the referendum campaign that warnings of a big hit to the economy from a Leave vote were little more than scaremongering.

But economists warned the real challenge was yet to come.

“The adverse consequences of the Brexit vote will become increasingly clear as inflation shoots up

The adverse consequences of the Brexit vote will become increasingly clear as inflation shoots up and firms postpone investments

Samuel Tombs,

economist at Pantheon Macroeconomics

and firms postpone investment over the coming quarters,” Samuel Tombs, an economist at Pantheon Macroeconomics, who correctly predicted the quarterly growth rate in the poll, said. The BoE said in September that the preliminary ONS reading would probably show third quarter growth of only 0.2 per cent.

The Bank has come under criticism from some Brexit supporters for warning of a big economic hit from a vote to leave the EU. It has predicted a sharp slowing of growth next year as the impact of the referendum is felt more fully.

The central bank is due to decide next week whether to cut interest rates further below their all-time low of 0.25 per cent, something it hinted at last month. But Governor Mark Carney suggested this week that he was worried about the sharp fall in the value of the pound and how that will push up inflation.

Marc Ostwald, a strategist at ADM Investor Services, said the GDP data killed the chance of a rate cut next week and could also prompt the bank’s most stimulus-sceptical policymaker Kristin Forbes to call for an end to its bond-buying.

A poll of economists has shown the BoE is not expected to ease policy until early 2017.

Finance minister Philip Hammond will pay close attention to Thursday’s figures too. He is due to announce his first budget plans on November 23 and has said he could approve higher levels of public spending if needed to help the economy. —