The U.K. economy appears to be weathering Brexit better than many expected, but it’s still heading for its weakest performance in a year.
After a 0.7 percent expansion in the second quarter, economists in a Bloomberg survey anticipate just 0.3 percent in the three months since the vote to leave the EU. While that’s far from the recession that some warned the referendum would trigger, it would still be just half the average quarterly pace over the past four years.
The data is the first official indicator of how the economy as a whole has fared in the aftermath of Britain’s decision to divorce from its biggest trading partner. Surveys and data on consumer confidence and services, the biggest part of the economy, have held up after an initial post-vote dip. Still, the pound has slumped 18 percent since the vote and uncertainty about any new EU trading relationship may weaken business investment.
“There are still challenges ahead, let’s not get too carried away, but certainly it’s a decent start,” said Victoria Clarke, an economist at Investec in London. “From a position where we could have seen a huge shock to sentiment and a much bigger hit to services sector, it will be a decent performance.”
The report from the statistics office is published on Thursday as Bank of England Governor Mark Carney and fellow officials begin discussing new forecasts before announcing their interest-rate decision on Nov. 3. They cut rates to a fresh low in August and re-started bond buying as a defense against the Brexit vote, and some have questioned whether the stimulus was needed in light of the rosier-than-anticipated outlook.
That issue may come up on Tuesday, when Carney will be questioned by lawmakers in the upper house of Parliament on the BOE’s response to Brexit. Among the topics the House of Lords Economic Committee says it will address is whether the governor “misjudged” the impact.
“There is probably a reasonable chance still of another cut in interest rates over the coming months,” said Ruth Gregory, an economist at Capital Economics in London. “Although we can take some comfort in the resilience of recent data, the economy is clearly not out of the woods yet.”
Data in the past month indicate that both industrial production and construction may have declined in the third quarter, leaving services to drive growth. Budget numbers on Friday showed Britain is on course to borrow billions of pounds more than planned this year, leaving Chancellor of the Exchequer Philip Hammond with little wriggle room on fiscal stimulus.
The U.K. is the first Group of Seven nation to report GDP for the quarter, with the U.S. releasing its advance estimate a day later, on Oct. 28. France will also publish its estimate that day, with data for the euro area on Oct. 31.