British consumers brushed off June’s Brexit vote and drove the economy to expand faster than expected in the third quarter, but a hefty current account gap and weaker trade and investment raised warning flags for next year.
The economy grew by 0.6 percent in the three months to September, above its long-run average and beating expectations in a Reuters poll of economists who expected the UK’s Office for National Statistics (ONS) to stick with its earlier estimate of 0.5 percent.
The ONS also revised down growth for the second quarter to 0.6 percent, meaning there was no slowdown at all following June’s Brexit vote — confounding predictions at the time that the “leave” vote would push Britain’s economy into recession.
With the large services sector continuing to perform well in October, Britain’s economy looks on track to expand by more than 2 percent this year — faster than almost all other big advanced economies except perhaps the US.
“Six months to the day after the Brexit vote, it is clear that 2017 is likely to be a challenging period for the economy, not least in assessing ‘traditional’ imbalances in the current account and the household sector,” Investec Securities Ltd chief economist Philip Shaw said.
Economists polled by Reuters expect Britain’s growth rate to more than halve next year to 1.1 percent.
Britain’s current account deficit widened to ￡25.494 billion (US$31.23 billion) from a downwardly revised ￡22.079 billion in the second quarter.
While lower than the ￡27.45 billion expected by economists, it caused the deficit to rise to 5.2 percent of GDP from 4.6 percent — approaching a record 6 percent seen in late 2013.
‘KINDNESS OF STRANGERS’
In the run-up to June’s referendum, Bank of England Governor Mark Carney said that Britain relied on the “kindness of strangers” to meet its financing needs — something that could fade if Britain became a less attractive investment destination.
Some economists have said that Britain could still be vulnerable if it looks like it will end up with a bad deal in its divorce from the EU.
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