United Kingdom: Economy remains resilient in Q4
February 22, 2017
In the final quarter of last year the United Kingdom’s economy continued to defy expectations and remained fairly impervious to the political uncertainty stemming from Brexit. Revised figures showed that GDP expanded at a healthy rate of 0.7% in Q4 compared to the prior quarter, up from the preliminary estimate of 0.6% and coming in above the figure markets had predicted. As a small caveat, the upwards revision was mainly due to a strong showing from the manufacturing sector, in particular the pharmaceuticals industry, which is often highly erratic. On an annual basis, GDP over 2016 as a whole expanded 1.8%, which was down from the initial estimate of 2.0% and below 2015’s 2.2%.
Breaking GDP down by expenditure, Q4’s growth was underpinned by an improvement in private consumption, which rose 0.7% compared to Q3. Healthy consumption growth was reflected in an uptick in retail sales in the final quarter of the year. On a less positive note, fixed investment stagnated in Q4, capping off a year of meagre growth. Behind the disappointing result was a drop in business investment, mainly due to a reduction in investment in IT and transport equipment. As a result, business investment in 2016 registered the first annual decline since 2009. The external sector improved, with the external sector’s contribution to growth swinging from minus 1.2 percentage points in Q3 to plus 1.3 percentage points in Q4, due to exports surging 4.1% and imports contracting 0.4%.
Looking at the sector-by-sector picture, services remained the engine of the economy, expanding 0.8% quarter-on-quarter and marking the 16th consecutive quarter of growth. The rise was driven by an expansion across the board, with the distribution, hotels and restaurants and transport, storage and communication sub-sectors performing particularly strongly. Industry rose 0.3% qoq, driven by a strong contribution from manufacturing, while construction showed a 0.2% rise thanks to a boost in public and private new housing work. Agriculture also performed well, expanding 1.0% qoq.
On an annual basis, GDP grew 2.0% in the fourth quarter, below the preliminary estimate of 2.2% and undershooting analysts’ estimates of a 2.2% expansion (Q3: +2.0% year-on-year).
Author: Oliver Reynolds, Economist