UK GDP beats expectations again in fourth quarter

UK GDP beats expectations again in fourth quarter

UK economic growth rose by 0.6 per cent in the fourth quarter of 2016, according to an initial estimate by the Office for National Statistics (ONS), fuelled once again by the strength of the services sector.

The preliminary estimate, in line with second and third quarter growth rates, beat expectations of a 0.5 per cent rise and contributed to full-year growth of 2 per cent – likely to be higher than that of any other large developed market economy.

The ONS said growth was “dominated by services” on the quarter. The strength of retail sales was a particular factor, despite signs of a slowdown in consumption growth have started to emerge in recent weeks.

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UK retail sales rose by 5.7 per cent year-on-year in November, according to separate figures from the ONS published last month. Subsequent figures for December, however, caught analysts off guard, rising by 4.3 per cent instead of the expected 7.2 per cent.

Economists expect this trend to take hold in the coming months as the EU referendum decision starts to have an impact on domestic growth.

Ruth Gregory, chief UK economist at Capital Economics, said: “The 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.

“Growth still looks set to slow in 2017 as higher inflation takes some of the steam out of household spending. That 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.”

Total GDP growth of 2 per cent for 2016, while down on the 2.2 per cent and 3.4 per cent figures recorded in the previous two years, puts the UK in a good light versus its peers. It outstrips the 1.9 per cent recorded by Germany last year and is likely to be ahead of full-year estimates for the US and eurozone, due to be published imminently.

The pound was relatively unchanged against the dollar at $1.2611 in response to the figures.