The first estimate of UK GDP in the final quarter of 2016 is out, and the data was good.
The UK economy grew by 0.6 per cent in the final quarter of 2016, taking the annual growth rate to 2.2 per cent, this was a tad better than expected. The UK grew at a quarterly rate of 0.6 per cent in each of the last three-quarters of 2016, if it wasn't for a more lackluster 0.3 per cent growth rate in Q1, it would have been a clean sweep.
But can it last?
Samuel Tombs, Chief UK Economist at Pantheon Macroeconomics thinks not. He said: "The economy’s brisk growth at the end of 2016 has all the hallmarks of being driven by an unsustainable consumer spending spree." Highlighting a The 0.8 per cent quarter-on-quarter increase in services output, a pick-up in inflation and slight decline in employment in Q4 he said: "Output in the distribution, hotels and restaurants sector rose by 1.7 per cent, accounting for 0.3 percentage points rise in the services output." He added that "real households’ incomes were no higher than in Q3, so consumers appear to have turned to debt to spend more. "
Ruth Gregory, UK Economist at Capital Economics said: "balance of growth looks set to shift this year. The forthcoming rise in inflation will probably hit the recently strong-performing consumer services sector, while the more competitive exchange rate should help to bolster industrial activity."
While agreeing that the economy may slow down this year, she said: "We don’t expect the slowdown to be too severe. For a start, the strong end to last year provides a solid base for growth in 2017. What’s more, while the adverse effects of the pound’s fall have yet to be fully felt, the same goes for the beneficial effects too. Indeed, past relationships suggest that if the poundremains at current levels, then exporters’ order books will strengthen considerably further during the course of the year. As such, we continue to think that growth will be a reasonable (above-consensus) 1.8 per cent in 2017 as a whole."