Official GDP figures to show UK economy defying Brexit recession warnings

 
Jake Cordell
Follow Jake
Gherkin with Canary Wharf in background
Not quite sunlit uplands just yet, but the economy has avoided the worst post-referendum forecasts so far (Source: Getty)

The UK economy is set show by just how much it outperformed pre-referendum forecasts later this week, when official growth figures for the crucial third quarter are published.


Economists expect the Office for National Statistics (ONS) to find the UK grew by a robust 0.3 per cent between the end of June and the end of September. Some are pencilling in a 0.4 per cent expansion.

The figures stand in stark contrast to expectations of either zero growth or an outright contraction many forecasters believed would materialise as a result of the referendum. Even at the beginning of August - six weeks after the vote, the Bank of England said the UK would struggle to grow by 0.1 per cent in the third quarter.

Anything below 0.5 per cent in Thursday's numbers, is still weaker than the long-term average the UK has mustered since the end of the financial crisis, and a significant slowdown on the 0.7 per cent recorded in the second quarter.

Read more: Banks are already planning to leave London


A collection of the latest forecasts, from City economists and think tanks, published by the Treasury, shows the consensus estimate is for the UK to grow by 1.9 per cent this year. That is higher than the 1.8 per cent forecast last month and well up on the 1.5 per cent registered in the immediate aftermath of the vote.

Surprisingly strong short-term performance has not been enough to allay all concerns about the health of the UK. Experts expect the economy to grow by just one per cent next year - implying the slowdown will intensify as the full effects of a weaker pound begin to hit consumers.

With manufacturing and construction - the two other components of the economy - predicted to have contracted over the period, it is the UK's mighty services industry which will be doing the heavy lifting.

"The economy’s resilience in the third quarter appears to have been helped by consumers’ willingness to keep spending, healthy services activity and the substantially weakened pound encouraging spending by overseas visitors," said Howard Archer of IHS Markit.

Read more: Leaked papers reveal £75bn cost of hard Brexit

Following very disappointing deficit figures out last week, forecasts for government borrowing have also swelled, with experts suggesting the UK will need to borrow just shy of £70bn this year, well above official forecasts of below £50bn. Economists at Barclays said the stronger growth figures and markedly weaker deficit numbers mean they are now "expecting slightly less discretionary spending [to be announced] in the Autumn Statement" at the end of November.

In another gloomy outlook on the medium-term prospects of the UK, the Bank of America Merrill Lynch predicted rising inflation as a result of the slide in sterling will stifle any consumer-led post-referendum bounceback.

Robert Wood BAML team: "We have seen before what effect rising imported inflation has on growth: consumption squeezed and exports benefiting little," said BoAML economist Robert Wood. "It could be worse this time round, as consumers may not be able to cut saving rates much".

Related articles