UK growth still expected to soften despite latest boost

Britain’s economy likely expanded by 0.7% in the three months to January, quickening slightly from the fourth quarter, the UK’s National Institute of Economic and Social Research said yesterday.

Its estimate followed the earlier publication of industrial output and trade data for December, which underlined the UK economy’s strong end to 2016.

The institute 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% this year as rising consumer price inflation weighs on consumer spending,” said Oriol Carreras, a research fellow at the institute.

Its 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% this year. A Reuters poll published last month showed that, on average, economists expect the rate of UK GDP growth to almost halve this year to 1.2%.

Yesterday’s separate Office for National Statistics data showed that British manufacturing grew more strongly than expected in December and that the country’s smaller construction sector grew more quickly than many economists had forecast, while the trade deficit narrowed.

The figures showed manufacturing grew strongly in the October-December period, up 1.2% from the previous three months, the strongest performance since June’s Brexit referendum.

On that subject, Jacqueline Minor — the head of the European Commission’s office in Britain — yesterday said it is unrealistic for the UK to expect to negotiate its exit from the EU and reach a free trade agreement in two years and both will probably need an implementation phase.

UK prime minister Theresa May says she will trigger Article 50 of the EU’s Lisbon Treaty by the end of March to launch formal divorce talks that can last up to two years.

However, Ms Minor said: “There is pressure to agree because both sides recognise a disorderly exit is bad for everyone ... creating enormous uncertainty. But the Article 50 agreement is essentially the divorce, it’s looking backwards and disentangling the relationship and ... it can get nasty.”

“It’s unrealistic to think, to assume that that kind of partnership that Mrs May talked about at Lancaster House [on trade] can be agreed within the two-year period”, she said, adding it would probably need an “implementational” phase.

Reuters

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