U.K. Economy Probably Ended Year on a High Ahead of Weaker 2017

Updated on
  • GDP seen rising 0.5%, close to pace in previous quarters
  • ONS will publish fourth-quarter data on Thursday in London

The U.K. economy looks to have finished 2016 on a high.

That’s according to the latest Bloomberg News survey of economists, which predicts 0.5 percent growth in the fourth quarter. That would follow expansion of 0.6 percent in both the third and second quarters. The Office for National Statistics will publish the data on Jan. 26 in London.

While the latest business surveys show continued resilience to the Brexit vote to leave the European Union, there are risks on the horizon. Retail sales plunged in December and accelerating inflation this year will squeeze consumers, the driver of growth so far. The fourth quarter may be the last leg before the slowdown, according to Liz Martins, an economist at HSBC Holdings Plc in London.

“The fourth quarter may suggest that we’re going in on a stronger footing than we’ve been allowing for, but all in all, I think the first quarter is going to be slower,” Martins said in a telephone interview. “It’s because of inflation and that erosion of real wage growth, but it’s also been a period of incredible strength, and you can’t really keep going at that rate forever.”

The Bank of England’s Monetary Policy Committee will begin meetings next week in preparation for its Feb. 2 interest-rate decision. Alongside the announcement, officials will also publish their new quarterly economic forecasts.

BOE Governor Mark Carney signaled earlier this month that the central bank may raise those projections for the second time since the Brexit vote. However, Carney has also warned that consumers face fresh headwinds in 2017 that are likely to curb growth. Data this week showed inflation accelerated in December to the fastest since 2014.

While headline growth figures are holding up, monthly output reports for individual sectors paint a more unbalanced picture. Construction and industrial output has been erratic, while services are surging.

The outlook for the economy is riding on how the government negotiates a new trading relationship with the world. Prime Minister Theresa May set out her plan this week, which included Britain leaving the EU’s single market, a move that may damp business investment and hiring.