UK economy continues to defy Brexit fears – MUFG

Lee Hardman, Currency Analyst at MUFG, notes that the release yesterday of the latest UK GDP report for Q4 confirmed that the UK economy was little impacted by the Brexit vote in the second half of last year.

Key Quotes

“Economic growth actually accelerated in the second half of last year compared to in the first half ahead of the referendum. As a result the economy expanded by roughly the same pace last year as in the previous year by 2%. For the UK economy it has clearly been a case of business as usual so far which brings into question whether the emergency easing that the BoE delivered after the initial false signal sent by the collapse in business confidence was necessary. However, we doubt that the BoE will be so quick to reverse it and will argue that it has helped to keep growth solid.”

“The loosening of BoE policy has contributed to further weakness in the pound thereby reinforcing the upcoming jump in inflation which will begin to have more of a dampening impact on growth. Consumer spending growth is likely to moderate but could be partly offset by stronger positive contributions from net trade and business investment. We remain optimistic that the UK economy will slow only modestly in the year ahead and continue to defy fears over a sharper slowdown. It supports our outlook for the pound to outperform more downbeat consensus expectations.”