British economy grows unexpectedly, Brexit vote and all

The British economy has grown faster than expected between July and September, despite uncertainty about what effects Brexit would have on the country's businesses.

First Look

As the British government releases better-than-expected growth figures for the quarter following Brexit, Britons are left wondering what’s next for the economy.

On Thursday, the Office of National Statistics announced that the economy grew 0.5 percent in the three months between July and September. That puts growth below the previous quarter’s 0.7 percent, but comfortably exceeds economists’ predictions of a 0.3 percent growth rate.

The numbers are the clearest indicator so far of the British economy’s performance following the country’s vote to leave the European Union. Proponents of Brexit say that it is time for the government to admit that leaving the European Union isn’t bad news for the economy after all. But many economists argue that the picture is more complicated.

“The adverse consequences of the Brexit vote will become increasingly clear as inflation shoots up and firms postpone investment over the coming quarters,” said Samuel Tombs of Pantheon Macroeconomics. In a Reuters poll of economists, he correctly predicted the 0.5 percent growth rate for the quarter.

The Brexit vote has raised all kinds of questions about Britain’s economy and its relationship to the European Union since it took place in June. Prime Minister Theresa May has been steadfast in saying that the country will ultimately reach a good deal with Europe.

After the release of the quarterly numbers, the group Economists for Brexit called for Britain’s finance ministry to “come clean” about the economics of leaving the EU. Just as the government’s short-term predictions proved to be too low, its long-term forecast is also likely to be wrong, they said.

But uncertainty seems to be affecting business, with companies like Vodafone looking to relocate so that they can maintain access to the EU’s free movement of people, capital, and goods. The drop in the pound, caused by falling investor confidence, led Unilever, the largest consumer goods provider in Britain, to raise prices – and sparked a temporary price war with supermarket giant Tesco.

Economic growth in the quarter was largely driven by the services sector, which grew 0.8 percent. Tourism was a key part of that, with the weak pound encouraging spending by foreigners. The film and television sectors also provided a welcome boost – the latest installments of the "Jason Bourne" and "Star Trek" series arrived on the big screen over the summer, along with other movies.

For some, that reliance on services is a concern, with Kathleen Brooks, research director for City Index, saying, “The UK economy hasn’t buckled from the post-Brexit storm at this stage. But, this report isn’t all sunshine and flowers.” Industrial production fell by 0.4 percent, while the construction sector shrank 1.4 percent, perhaps supporting Mr. Tombs’s view that firms are postponing investment as they wait to see how Brexit shakes out.

One firm that is confident about investing in Britain is Nissan. The Japanese automaker announced that it will produce its next Qashqai SUV at the company’s Sunderland plant, and will also shift production of the next X-Trail model there.

The government offered Nissan support against any damage resulting from Britain’s decision to leave the EU, a source told Reuters on Thursday. The decision protects 7,000 manufacturing jobs, which may help allay concerns about job losses following Brexit.

For now, British leaders seem cautiously optimistic about economic growth. 

“The economy will need to adjust to a new relationship with the EU, but we are well-placed to deal with the challenges and take advantage of opportunities ahead,” said Philip Hammond, the chancellor of the Exchequer, during a visit to Southampton on Thursday.

Mr. Hammond is expected to announce his first budget plans next month, and is preparing to “support the economy ... through this period of uncertainty.”

Material from the Associated Press and Reuters contributed to this report.