The UK ended 2016 on a high, recording an unexpected acceleration in growth thanks to the biggest boost from net trade in almost six years.
The question is whether this new economic mix can persist, with the weaker pound helping to deliver a continued export pickup, offsetting a smaller contribution from shoppers who are about to be squeezed by faster inflation. That would help support the economy through the uncertainty from the looming Brexit negotiations, which will see the UK begin the process of untangling itself from a four-decade membership of the European Union.
The latest overview of the economy showed that gross domestic product rose 0.7 percent in the three months through December, revised up from 0.6 percent to what was the fastest pace in a year. Trade and consumer spending provided the biggest contributions as business investment fell.
â€œThe worry is that consumer spending will continue to come under pressure from rising prices and a cooling of the labor market,â€ said Chris Will-iamson, an economist at IHS Markit in London. â€œAt the same time, thereâ€™s a real risk that the business mood will be dampened as Brexit-related uncertainty intensifies. It therefore seems likely that 2017 will see the UK economy struggle to achieve anything like the performance seen in 2016.â€
Consumers have kept the economy going since the Brexit vote but signs of strain are now appearing. Credit growth slowed sharply in December and retail sales grew at their slowest annual pace in more than three years in January. The pound has fallen 16 percent since the referendum in June, boosting the cost of imports.
The Bank of England expects the economy to grow 2 percent this year, it said this month, revising up a previous prediction of just 1.4 percent. Economists surveyed by Bloomberg expect a much weaker pace of 1.4 percent, which would be the slowest since 2012. The economy grew 1.8 percent in 2016. The European Commission said on Wednesday that net exports will contribute positively to growth
this year and next, mitigating weakness in domestic demand. It still expects slower expansion, at 1.5 percent and 1.2 percent.
The GDP data showed household spending rose 0.7 percent in the fourth quarter, down from 0.9 percent in the previous three months. Business investment dropped 1 percent. Exports gained 4.1% and imports fell 0.4%, meaning net trade added 1.3 percentage point to growth â€” the biggest contribution of any category.