Britain’s economy barely slowed in the third quarter despite the Brexit vote shock, further diminishing the chance of a fresh interest rate cut by the Bank of England next week. Gross domestic product expanded by 0.5 percent in the July-September period, less rapid than the unusually strong growth of 0.7 percent seen in the second quarter but comfortably above a median forecast of 0.3 percent in a Reuters poll of economists. Compared with the third quarter of last year, growth picked up to 2.3 percent, the strongest pace in more than a year, according to the preliminary figures from the Office for National Statistics. “There is little evidence of a pronounced effect in the immediate aftermath of the vote,” ONS chief economist Joe Grice said, adding growth was in line with the pattern since 2015.
Supporters of Brexit are likely to say the figures back the claims they made during the referendum campaign that warnings of a big hit to Britain’s economy from a vote to leave the EU were little more than scaremongering. The stronger-than-expected growth in the third quarter was thanks only to the country’s dominant services sector which saw rapid growth in film and television production and distribution. The ONS linked the pickup to strong box office receipts in July when the latest releases in the Jason Bourne and Star Trek series hit the screens along with other blockbusters.
The figures provide the first broad estimate of the size of the hit to Britain’s economy from the referendum decision in June to leave the European Union. Many economists originally expected a ‘Leave’ vote to push the economy quickly into a shallow recession. The BoE said as recently as September that the preliminary ONS reading would probably show growth in the third quarter of only 0.2 percent. 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 percent, something it hinted at last month. But its governor, Mark Carney, suggested on Tuesday that he was concerned about the sharp fall in the value of the pound and how that will push up inflation, further dampening already low expectations of a rate cut on Nov. 3. A Reuters poll of economists has shown the BoE is not expected to ease policy until early 2017.
Finance minister Philip Hammond will also pay close attention to Thursday’s GDP figures. He is due to announce his first budget plans on Nov. 23 and has suggested he could approve higher levels of public spending if necessary to help the economy cope with the Brexit slowdown. The ONS said on Thursday that the country’s dominant services sector provided all the growth for the economy in the third quarter, growing by 0.8 percent from the April-June period.
Industrial production, including manufacturing, and construction both contracted, down 0.4 percent and 1.4 percent respectively. The fall in construction was the biggest since the third quarter of 2012. In August alone, the services sector grew by a monthly 0.2 percent after a strong July when it expanded 0.4 percent, the ONS said, citing its separate index for the sector. The preliminary GDP data do not include a breakdown of spending and are based on estimates accounting more than half of the overall reading.