UK, February 24, 2017.- Britain’s economy likely expanded by 0.7 percent in the three months to January, quickening slightly from the fourth quarter, the National Institute of Economic and Social Research said on Friday. Its estimate follows the publication of industrial output and trade data for December, which underlined the economy’s strong end to 2016. NIESR cited consumer spending and a pick-up in industrial production as the main drivers behind the economy.”Despite our estimates indicating a strong start of 2017, we expect economic growth to soften to 1.7 per cent this year as rising consumer price inflation weighs on consumer spending,” said Oriol Carreras, a research fellow at NIESR. NIESR’s prediction lies in the upper range of forecasts among economists polled by Reuters, but it is still less optimistic than the Bank of England’s expectation that the economy will grow 2 percent this year.
A Reuters poll published last month showed that, on average, economists expect the rate of GDP growth to almost halve this year to 1.2 percent.
More positive macroeconomic indicators
U.K. unemployment arrived this morning with no real change. The number, 4.8%, is at an 11-year low. Beyond that, it is low by all standards. The last time unemployment was this low was going into the dot-com era. There is a general lag of 6-9 months for any economic activity to work its way into an economic indicator. Brexit happened late June of last year, 8 months ago. If there was going to be any kind of effect, positive or negative, you would see moves in the unemployment numbers already. It is safe to say that there has been no real effect on unemployment at this point.PMI manufacturing activity has been positive since the initial Brexit impact. This may well be a factor of a very inexpensive currency that dropped from 1.5100 to 1.2000 vs. USD; everything in the entire country is 20% off.
The FTSE 250 – often seen as a better barometer of the economy than the FTSE 100 as many of its firms are British rather than global – rose 0.5 per cent to 18,715.36, a record high. The FTSE 100 index of blue chip stock was up 0.4 per cent to 7258.75 – leaving it just shy of last month’s best ever close of 7337.81. The London stock market has gained 22 per cent since its low in the immediate aftermath of the Brexit vote – adding £397billion to the value of Britain’s leading 350 companies.
The gap between what the country imports and exports fell to £8.6 billion in the final quarter of 2016, to give the economy another boost in the wake of the vote to leave the European Union (EU). Exports of goods to non-EU countries leapt by 17.3 per cent to £43.8bn between third and fourth quarter in 2016. There was also an increase of 3.5 per cent for exports to the EU, to £38.3 billion for the same period, showed data from the Office for National Statistics (ONS).Experts said the figures helped show Britain’s economy is now ‘firing on several cylinders’ as the weaker pound helps to lift trade in UK’s favour. Britain also still imports far more from the EU than it exports, meaning it is more important for the bloc, than the UK, to secure a favourable trade deal after Brexit.
What is the key to current growth?
The Guardian says: A better explanation for the robust performance of the economy is that consumers have carried on spending. The factors that underpinned domestic demand ahead of the referendum – low unemployment, rising house prices and rock-bottom interest rates – are still in place. The Bank’s decision to cut rates and to deliver another dollop of quantitative easing in August has, if anything, created even more growth-friendly conditions. Those who confidently predicted that the economy would plunge immediately into recession now have an alternative narrative, namely that the real pain will not come until article 50 has been triggered. This, though, is not what they were saying six months ago and necessitates significant post-rationalisation. What is certainly true is that growth continues to be highly unbalanced. It has been the service sector that has been keeping the economy going over the past six months, with retailing and hospitality especially strong.Hammond said at Microsoft that while he expected the fall in the value of the pound to slow consumer spending through its impact on imports, he had been pleasantly surprised by how slow the effects from the depreciation of the pound had been.The performance of the economy in the second half of 2016 means that forecasters have been revising up their growth estimates for 2017. That looks smart, particularly against a backdrop of a pick-up in global demand spearheaded by the US. A few months ago, the expectation was that Hammond would use his budget in early March to provide a fillip to the economy.