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Experts believe new GDP data will show economy holding up well since Brexit vote

Published 21/10/2016

Economists now believe Thursday's growth figures may prompt the Bank of England to hold off from lowering rates again in November
Economists now believe Thursday's growth figures may prompt the Bank of England to hold off from lowering rates again in November

The UK economy is set to defy expectations for a sharp slowdown after the Brexit vote in next week's first set of official growth figures since the referendum.

Economists believe gross domestic product (GDP) data for July to September will show the economy holding up well, casting doubts over whether the Bank of England will slash interest rates again next month.

Resilient consumer spending and a robust performance from the powerhouse services sector is set to see growth of between 0.4% and 0.5% in the three months since the Brexit vote.

This is down from 0.7% in the second quarter, but far better than feared in the immediate aftermath of the referendum.

In August, the Bank slashed interest rates and unleashed an economy-boosting package worth up to £170 billion, warning that even after its sledgehammer action, third quarter growth would almost flat-line at around 0.1%.

It said more rate cuts were likely in the coming months.

A surprisingly hardy performance from the economy since then saw the Bank upgrade its growth forecast in September to between 0.2% and 0.3% , but it still said another rate cut was on the cards by the end of the year.

Economists now believe Thursday's growth figures may prompt the Bank to hold off from lowering rates again in November, with decent retail figures and rising employment suggesting little Brexit caution.

Samuel Tombs, at Pantheon Macroeconomics, said: "T he latest retail sales figures suggest that next week's preliminary estimate of GDP will significantly exceed the Monetary Policy Committee's 0% expectation when it made its guidance that it would cut interest rates again this year.

"We look for a 0.5% quarter-on-quarter rise in GDP, which likely will persuade the MPC to refrain from cutting interest rates in November."

Alan Clarke, at Scotiabank, forecasts a 0.4% rise in third quarter GDP, adding: " If we get a number like that, the Bank of England isn't going to be in a rush to loosen monetary policy again in November."

But economic clouds are gathering on the horizon, with inflation building and signs of weakness in the labour market.

Inflation hit its highest level for nearly two years in September, at 1%, and is expected to rise further as the plunging pound sends costs soaring.

Howard Archer, chief UK and European economist at IHS Global Insight, said rising inflation is set to become a "mounting problem for the economy", impacting consumer spending and businesses.

"Indeed, there seems a strong possibility that inflation will move above earnings growth during 2017," he added.

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