UK economy ends 2016 on a strong footing

Fourth quarter GDP growth beats expectations and shows no signs of Brexit gloom.



Azad Zangana
Senior European Economist and Strategist

There are still no signs of a slowdown in the UK economy since the Brexit referendum, according to the latest GDP figures from the Office for National Statistics. The UK economy is estimated to have grown by 0.6% in the final quarter of the year compared to the previous quarter, where growth was 0.5%.

The latest figures beat consensus expectations of 0.5%, largely thanks to stronger activity from the service sector, which grew by 0.8% during the quarter. In contrast, industrial production output (including manufacturing) was stagnant, while the construction sector eked out 0.1% growth.

We also now have the full-year figures for GDP, which show that the UK economy grew at a steady pace, but slower than in past years. GDP grew by 2% over 2016, which is down on 2015 (2.2%) and 2014 (3.1%).

Consumer demand is driving growth

Strong consumer demand appears to have continued to fuel the good run of growth within services. Activity in the distribution, hotels and restaurants sectors grew by 1.7% over the quarter – the fastest pace of growth since 2012.

Indeed, household consumption is again expected to be the main driver of the expenditure measure of GDP once it is released next month.

Inflation to dent household spending power

However, with inflation rising sharply in the coming months due to higher energy prices, and also higher imported goods’ prices caused by the depreciation in sterling, households are likely to see their purchasing power decline.

Without stronger wage growth, households are likely to cut back spending, especially on non-essential goods and services. Therefore, we continue to forecast a slowdown in UK economic growth over the course of 2017.

However, the latest figures place the economy on a stronger footing to be able to cope with the headwinds that are coming.

Schroder Investment Management Limited - Dubai Branch is a DIFC Foreign Recognised Company. The DIFC Branch is duly authorized and regulated by the Dubai Financial Services Authority. The content of this material is not intended nor is it to be considered as financial advice and is only for the purpose of knowledge. This material has not been approved by any regulator/authority in the Middle East region. Accordingly, no regulator/authority has approved this information material or any other associated documents nor taken any steps to verify the information set out in this material and has no responsibility for it.


We have made every effort to ensure the accuracy of the information in this document. However, we cannot be held responsible for any errors, mistakes, or omissions, or for any actions taken based on this information. If you do not fully comprehend the content of this document, we recommend seeking advice from an authorized financial advisor.

This research and the information contained herein may not be reproduced, distributed, or transmitted in DIFC or in any other jurisdiction to any other person or incorporated in any way into another document or other material without our prior written consent.


Azad Zangana
Senior European Economist and Strategist


Follow us

Issued by Schroder Investment Management Limited. Authorised and regulated by the Financial Conduct Authority.

For illustrative purposes only and does not constitute a recommendation to invest in the above-mentioned security / sector / country.

© Copyright 2018  Schroder Investment Management (Europe) S.A. All rights in all countries.

Schroder Investment Management Limited – (Dubai Branch) is regulated by the Dubai Financial Services Authority (“DFSA”)