British economy grows 0.6% in final quarter of 2016

Analysts say the U.S. Federal Reserve is unlikely to raise rates at its meeting next week, but markets are looking for at least two rate hikes in 2017 to offset the risk of inflation in a strengthening economy.

Britain's economy grew by 0.6 percent in the final three months of a year ago and by 2.0 percent over 2016, official data showed Thursday as the country prepares for Brexit. The services aggregate was the sole contributor to the quarter-on-quarter percentage change in GDP to 2 decimal places. "We really didn't have a slowdown at the end of the year".

For the year, GDP grew at 1.6 percent, the slowest rate since 2011.

It means GDP expanded by 2 per cent a year ago compared with 2015.

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President Donald Trump has promised to lift GDP growth to 4%, through tax cuts and infrastructure spending.

Personal consumption expenditure, which contributed to 1.7 percentage points to total growth, rose 2.5 percent, a slowdown from the 3 percent rate in Q3. This has prompted many people to believe that the growth in Q4 should be extremely fantastic, however analysts are suggesting that this may not be so. It was the largest trade-related drag on overall growth since the second quarter of 2010. Most of the hit came from soybean exports, which fired up GDP growth in the third quarter after a poor soy harvest in Argentina and Brazil. Net exports fell by another 1.7pc in Q4 GDP, the most since mid-2010: The US trade deficit widened further. A higher trade deficit subtracts from economic growth because it means more production is being supplied from overseas.

The figure proved a slight improvement on economists predictions of 0.6 percent, however for 2016 growth was down to 2.0 percent compared to 2.2 percent the previous year.

'Strong consumer spending supported the expansion of the dominant services sector and although manufacturing bounced back from a weaker third quarter, both it and construction remained broadly unchanged over the year as a whole'.

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Government spending growth stayed steady at a rate of 1.2 percent. The cutbacks in business investment along with efforts by companies to reduce an overhang of unwanted inventories were major reasons growth slowed in 2016.

Allan Monks, a J.P. Morgan economist, said the BoE would probably stick to its neutral stance on interest rates next week. They believe that the prolonged reduction in stockpiles has run its course and business spending on new plants and equipment will begin to rebound.

Commenting on the composition of growth, Joseph Brusuelas, chief economists at RSM, said, "The detail underneath the topline 1.9 percent growth is somewhat encouraging with gross domestic purchases increasing by 3.5 percent, final sales to domestic purchasers increasing 2.5 percent and final sales to private domestic purchasers rising by 2.8 percent".

Others are even more positive. It is also much lower than the growth rate trend before the downturn, which averaged 2.9% a year over 10 years. Promised infrastructure spending by the Trump administration and the repatriation of factories by some of the biggest companies in the U.S. are also expected to give the economy a short-term rush of activity.

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(Copyright © 2015. All Rights Reserved.)
 
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