by Ben Brettell, Senior Economist, Hargreaves Lansdown
The UK economy shook off Brexit-related uncertainty to post 0.5% growth in the third quarter. This is down from 0.7% in Q2, but far better than the 0.3% economists had feared.
The ONS said there was little evidence thus far of an output shock in the immediate aftermath of the vote.
Initial GDP estimates should always be taken with a pinch of salt, as they are based on less than half of the data which will ultimately be available, and are therefore subject to revision in the coming months. Nevertheless it’s difficult to interpret today’s figures as anything other than very good news for the UK economy.
Some will be concerned about the absence of any rebalancing of the economy away from the ever-dominant services sector, which grew 0.8% while everything else contracted. However, I don’t see this as a problem. In an increasingly global economy, individual countries need to specialise in industries where they have a comparative advantage. It’s clear to even the most casual onlooker that the UK has a comparative advantage in services, and therefore it shouldn’t come as a surprise that ever more resources are allocated to that sector of the economy.
The Bank of England may deserve some credit for acting swiftly to bolster the economy in the months after the referendum, though of course it’s impossible to predict what would have happened in the absence of any action. What today’s release does do is pour cold water on the chances of a further rate cut next month. In August the Bank said the majority of MPC members expected a further rate cut later this year, but at the time it was forecasting zero GDP growth. A stronger-than-expected Q3 performance is likely to mean the Bank leaves policy unchanged when it meets in November.