UK: Economic growth driven by exports and households in 16Q4 – Rabobank

Analysts at Rabobank note that economic activity in the UK was strong in the fourth quarter of 2016, with GDP increasing by 0.7% compared to the previous quarter.

Key Quotes

“However, due to a downward revision of the GDP data for the first and second quarter of 2016, economic growth totalled 1.8% in 2016. This was lower than earlier estimations and lower than the 2.2% growth rate recorded in 2015.”

“Net exports were the main driver of economic growth in the fourth quarter. Exports grew by 4.1% q-o-q, while imports declined by 0.4%, together contributing 1.3ppt to GDP-growth. Exports probably profited from the strong depreciation of the pound sterling since the Brexit referendum, boosting the competitiveness of British firms. Meanwhile, foreign products have become more expensive, suppressing imports. We expect the outlook for net exports to remain bright in 2017, because we forecast a slightly further depreciation of the pound in 2017.”

“Private consumption was (again) another important growth driver in the fourth quarter, increasing by 0.7% q-o-q and contributing 0.5ppt to economic growth. Our outlook for private consumption is less rosy, however, because we expect that imported inflation will suppress real disposable income. Furthermore, we expect that consumer confidence will decline during the (tough) Brexit negotiations, suppressing household expenditures. The annual decline in retail sales is a first sign that consumption growth is starting to slow down.”