Still cautiously optimistic: economic growth steady in 2016Q4

Date: 30 January 2017

Still cautiously optimistic: economic growth steady in 2016Q4

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest Brexit news:

• GDP growth in 2016Q4 was 0.6%, the same as for 2016Q2 and 2016Q3, confounding the OBR's Autumn Statement expectations of a growth slowdown in 2016H2.
• The OBR will probably revise up its growth forecasts for the Budget (8 March 2017), having cut them sharply in the Autumn Statement.
• The Bank is expected to raise its growth forecasts again in the February Inflation Report (due 2 February). It cut them sharply in August, though partly reversed the cuts in November.
• Other economic data were positive on the whole. The labour market remains firm, though inflationary pressures are picking up.

Brexit developments included:

• In a major speech on Brexit (17 January), the Prime Minister confirmed the UK will be leaving the Single Market and the Customs Union, and confirmed plans to negotiate a bespoke Free Trade Agreement with the EU.
• The Supreme Court ruled that the PM had to gain Parliamentary approval prior to triggering Article 50 (24 January).
• The PM announced there would be a White Paper, outlining the Government's negotiating objectives with the EU (25 January).
• The 'European Union (Notification of Withdrawal)' Bill was introduced to the Commons on 26 January.

In the light of the PM's recent visit to the US, it is instructive to note the importance of the US economy to the UK:

• The US is the biggest single export market for UK goods and services, and its share is growing. The share was 16.4% in 2005, rising to 19.7% in 2015.
• UK trade with the US is skewed towards services. This is helpful to the UK, as exports of services are growing quicker than goods.
• The US is the UK's most important partner for both inward and outward investment.
• UK trade with the US is comfortably in surplus, which is not the case for our trade with the EU.

Ruth Lea said, 'GDP growth in 2016Q4 continued at much the same rate as in 2016Q2 and 2016Q3. The OBR, in common with many forecasters including the Bank of England, expected a slowdown in the second half of 2016 and into 2017. They will probably upgrade their forecasts in the March Budget. In the meantime, I remain cautiously optimistic.'

For full story: http://www.arbuthnotgroup.com/economic_perspectives_group.html

Press enquiries:

Arbuthnot Banking Group PLC:

Ruth Lea, Economic Adviser
07800 608 674, 020 8346 3482
[e-mail]
Follow Ruth on Twitter @RuthLeaEcon

Bell Pottinger:
Dan de Belder
020 3772 2561
[e-mail]