Not only did the UK economy not suffer a post-Brexit recession, as many feared might happen, but in Q3, it did quite well. Alas, there may be trouble ahead.
There are lies, damned lies and the first estimate of GDP. According to this first estimate, out today (27 October), the UK economy did pretty well in the third quarter of this year, growing at 0.5%. But data gets revised, and sometimes, when the ONS, our official compiler of statistics, finishes revising its estimates of GDP, the final picture can look quite different. Sometimes, what we thought was a recession, such as the UK’s infamous double dip recession earlier this decade, turns out not to have been a recession at all. Sometimes the revision works the other way, and subsequent data is revised downwards.
The latest purchasing managers’ indexes, or PMIs, pointed to growth of 0.3% in Q3, and we may well find that. by the time the ONS has finished revising. the PMIs were closer to the truth.
But we have what we have, and imperfect though it is, let’s see what the data says.
Services up, industrial production down
It was a good quarter for services, growing by an impressive 8%, but not so good for industrial production and construction, down 0.4% and 1.4%, respectively.
Samuel Tombs, Chief UK Economist at Pantheon Macroeconomics said: "The preliminary estimate of GDP confirms that the referendum result did not send the economy into shock, but the adverse consequences of the Brexit vote will become increasingly clear as inflation shoots up and firms postpone investment over the coming quarters."
A sweet spot?
Ruth Gregory, UK Economist at Capital Economics said: "It could be that the economy is in a post-referendum ‘sweet spot’ whereby some of the positive developments since the vote, such as action by the MPC have been felt before the major adverse consequences, such as a rise in inflation. The actual triggering of Article 50 next year and indications of a further shift towards a ‘hard’ Brexit could prompt further falls in business sentiment and investment."
The bright side
Then again, she also said: "The rise in inflation shouldn’t be too stark by past standards and interest rates are set to remain at rock bottom for a long time. Meanwhile, Chancellor Phillip Hammond looks poised to relax the planned pace of fiscal tightening in the forthcoming Autumn Statement. As such, we only expect GDP growth to slow from about 2.0% this year to about 1.5% in 2017."
Stephen Devlin, Senior Economist at the New Economics Foundation said: "This is an economy that is simply muddling through. Today’s growth figures are of little reassurance or relevance to the millions facing high inflation, stagnating wages, and the prospect of significant economic turmoil.”
“The real impact of Brexit can’t be judged by a single GDP figure. If we’re to address the concerns of the left behind communities across the UK, we need to pay more attention to the number of quality jobs, regional inequalities and the effects of inflation on low earners.”