U.K. economy was revived by increased consumer spending during the last quarter of 2016. According to the report released by the Office of National Statistics (ONS) on Wednesday, Gross Domestic Product (GDP) growth jumped by 0.7% during Q4 2016 compared to the previous quarter’s increase of 0.6% and surpassed initial expectations that it would remain at the same level of 0.6%.
The economy’s reaction following the Brexit vote has been equally surprising in general, with the growth level for Q2 2016 (prior to the referendum) calculated at 0.7% and then after the Brexit result Q3 GDP data continued with 0.6% growth respectively. The latest release of strong growth data is a sign that consumers were confident enough to do their Christmas shopping.
For the year 2016 in total, GDP growth has been revised downwards according to the same report. Due to new information, the GDP growth for last year was adjusted to 1.8% and not 2% as initially forecasted. And this in turn implies that the U.K. economy no longer has the fastest growth within the G7 group of nations as Germany’s GDP grew by 1.9% during 2016. Given that consumer spending did not show signs of decrease and the Bank of England’s (BOE) intentions of maintaining interest rates at the current low levels, expectations remain that economic growth might stand firm.
Consumer spending and manufacturing moved upwards by 1.2% during Q4 2016. Although it is estimated that a part of consumer spending has been financed by borrowings given that overall credit card debt increased by 10% during 2016. The services sector, U.K.’s largest sector, expanded by 0.8% however the mining sector, aka the U.K. Mining Eye, fell by 8%. The British trade balance shrank during the quarter by a noteworthy £6.7 billion to £32.5 billion in comparison to the previous quarter due to an increase in exports of aircraft, oil and gold. However, this is not considered as a substantial improvement given that these goods are not frequently traded.
During the early European trading session on Wednesday, the latest news on the French presidential election that Marine Le Pen is the favourite to win the first round of voting has got the markets concerned. Le Pen has clearly voiced her Eurosceptic beliefs and she even pledged liberalisation of France from the European Union. The implications from that scenario could lead to the end of the euro currency and that drove the EUR/GBP to a two-month low of 0.8401.
However, that level was short-lived and the trend was reversed following the release of weak business investment data. The report, also released by the ONS, showed that Total UK Business Investment decreased by 1% for Q4 2016 compared to the previous quarter. The EUR/GBP steered upwards and reached 0.84904. On a daily basis, the currency pair increased by 0.4% and ended Wednesday’s trading session at 0.84713. During last week, it fell by 0.8%.