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Date: 12 December 2016

The UK economy: still cautiously encouraging

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest UK economic data:

• The ONS revised GDP growth up to 0.6% in 2016Q3, whilst revising growth down to 0.6% in 2016Q2. There was, therefore, no slowdown in growth in 2016Q3.
• Retail sales growth remained strong in October, as did services sector growth.
• The labour market remains firm, with the unemployment rate at 4.8%.
• The Bank of England's latest Agents' report was quite positive.
• But the current account of the balance of payments widened in 2016Q3 and the public finances remained significantly in deficit.
• Moreover, inflationary pressures are picking up, reflecting higher oil prices and the effects of the weaker pound. Nevertheless, CPI inflation, at 1.2% in November, remains well within the Bank's 2% target.
• The Bank left monetary policy unchanged at its December meeting.

Developments within the Eurozone include:

• The Italian government has agreed a €20bn fund to support the Italian banking sector, including Monte dei Paschi (Italy's most troubled bank). Any state 'bailout' must comply with the EU's new rules for bank rescues.
• There has been a 'spat' between Greece and its EU creditors. A recently agreed debt-relief scheme was put on hold because the Greek government implemented a fiscal handout without consulting its EU creditors. It has, however, been agreed that talks on the scheme will be resumed in January.
• There are key elections in Eurozone countries in 2017: the Netherlands (March), France (April and possibly May) and Germany (Autumn).

The US Fed raised interest rates in December, as expected, pencilling in three more rises in 2017, three more rises in 2018 and three further rises in 2019. Donald Trump, with his promises of fiscal expansion, will be inaugurated on 20 January. Ruth Lea said, 'the British economy performed better than expected in 2016Q3, in the wake of the Brexit vote. And there are sound reasons for economic optimism, albeit cautious, going forward as the talks on Brexit get under way. The Prime Minister is due to trigger Article 50, triggering the process of negotiating our withdrawal from the EU, by the end of March.'br />

For full story: http://www.arbuthnotgroup.com/economic_perspectives_group.html

Press enquiries:

Arbuthnot Banking Group PLC:

Ruth Lea, Economic Adviser
07800 608 674, 020 8346 3482
[e-mail]
Follow Ruth on Twitter @RuthLeaEcon

Bell Pottinger:
Dan de Belder
020 3772 2561
[e-mail]