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UK's economy accelerated at the end of 2016

UK's economy accelerated at the end of 2016

Enthusiastic British shoppers boosted the economy in the final three months of last year, pushing growth up to 0.7pc in the quarter, faster than was first thought.

GDP growth accelerated in the last quarter of the year, speeding up from the 0.6pc initially estimated by the Office for National Statistics.

The economy had already proved resilient since the Brexit vote, with growth of 0.6pc in the quarter before, and the quarter after, the referendum.

Now growth has accelerated a touch, speeding up as confident households increased their spending before Christmas.

GDP growth for 2016 as a whole was revised down, however, as extra data showed the economy got off to a slower start in the first quarter than previously thought. GDP grew by 1.8pc over the year, not the 2pc initially estimated.

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Economists remain confident that growth will hold up well this year.

“Upbeat consumer sentiment and continued low interest rates should ensure that household spending doesn’t slow too sharply,” said Paul Hollingsworth at Capital Economics.

“And the lower pound should help to drive a stronger net trade performance than in recent years. As a result, we expect growth to come in at about 1.8pc in 2017, comfortably above the current consensus expectation of 1.4pc.”

Consumer spending increased by 1.2pc in the final quarter of 2016 while manufacturing output also rose 1.2pc.

The dominant services sector grew by 0.8pc, but the mining and quarrying industry - which includes oil and gas - shrank by 7pc.

There are reasons for caution too, however.

Some of that spending by households has been financed by debt, with credit card borrowing rising by more than 10pc on the year and savings levels falling, something that is typically viewed as an unsustainable combination. At the same time inflation is also picking up, which may dent spending growth.

Business investment also fell by 1pc on the quarter, as companies invested £43.5bn in the final three months of the year, down from £44bn in the previous quarter.

“Consumers appear to have brought forward big-ticket purchases from the first half of 2017, because they expected prices to rise sharply this year. The collapse in retail sales over the last two months supports that story,” said Samuel Tombs at Pantheon Macroeconomics.

“This shift in the timing of consumption, alongside the intensification of the pressure on real incomes from rising inflation and slowing employment growth, suggests that household spending will grow only modestly over the next couple of quarters, depleting the economy’s overall momentum.”