Boost for UK economy as growth in third quarter revised up
The UK economy was enjoying some Christmas cheer after growth was revised up in the third quarter.
The Office for National Statistics said gross domestic product (GDP) expanded by 0.6% in the third quarter, up from a previous estimate of 0.5%, showing further resilience to uncertainty surrounding the Brexit vote.
The move was driven by a hefty revision to output from the business services and finance industries, which was revised up from 0.3% to 0.8% for the third quarter.
Separate figures for Britain's powerhouse services sector, which accounts for around 79% of the UK economy, saw output grow by 0.3% between September and October.
Darren Morgan, ONS head of GDP, said: "Robust consumer demand continued to help the UK economy grow steadily in the third quarter of 2016. Growth was slightly stronger than first thought, though, due to greater output in the financial sector.
"New figures on services also suggest that growth in that predominant sector of the economy continued into October, helped in large part by another strong showing from the retailers."
Amid the slew of economic data from the ONS, business investment was revised down to 0.4% from 0.9% for the third quarter, while household spending rose by 0.7% - or £2.1 billion - between July and September.
Britain's current account deficit - measuring the amount of money flowing in and out of the economy - grew to £25.5 billion in the third quarter, up from a revised deficit of £22.1 billion for the quarter before.
While it came in lower than economists' predictions of £28.2 billion, it will do little to dampen the concerns about Brexit uncertainty hampering the inflows of financial capital from abroad to finance the deficit.
Bank of England governor Mark Carney warned in the lead-up to Britain's referendum on the European Union that the nation relied on the "kindness of strangers" in order to finance the country's needs.
It was hoped that the plunge in the value of the pound since the Brexit vote would bolster exports by making UK goods cheaper on the world market.
However, there was little sign of a boost from sterling's slump, with trade in goods widening to £8.5 billion in the third quarter after imports increased by £7.4 billion and exports fell by £1.1 billion.
There were also signs that consumers were starting to feel the squeeze, as real household disposable income per head dropped by 0.2% in the third quarter compared with the same period last year.
Martin Beck, senior economic adviser to EY ITEM Club, said: "Consumer spending remained the key driver of growth in the third quarter, but the first cut of the income data raised further question marks about how long this can continue.
"With high inflation set to weigh further on spending power next year, the consumer is surely set to falter soon."
The Bank predicted in November that CPI would jump close to 3% in 2017, while influential think tank the National Institute of Social and Economic Research has said it could hit almost 4% next year.
Inflation reached a two-year high of 1.2% last month, squeezing families with higher price tags for clothing, food and petrol.
The third-quarter revision to GDP came as the ONS said growth was weaker than initially thought in the first half of 2016, cutting its estimates by 0.1% for the first and second quarters to 0.3% and 0.6% respectively.
Howard Archer, chief UK and European economist at IHS Global Insight, said despite some resilience at the end of this year, 2017 was likely to be "increasingly difficult" for the UK economy.
"We expect GDP growth to slow markedly to 1.3% in 2017 - as consumer fundamentals weaken markedly and business uncertainty is heightened by the Government triggering Article 50 to formally start the UK's exit from the European Union. Businesses are expected to become increasingly cautious over investment and employment."
He added: "With growth likely to be limited over 2017 and 2018, we expect the Bank of England to look through a likely substantial overshoot in inflation and keep interest rates unchanged at 0.25%. Indeed, we believe interest rates could well remain at 0.25% well beyond 2018."
A spokesman for the Treasury said: " The fundamentals of the UK economy are strong, but there remain challenges ahead.
"The Chancellor set out in the Autumn Statement his plan to support a resilient economy that works for everyone by driving productivity and supporting working people, while maintaining fiscal discipline."