Worries Over Brexit Remains Amid Improved Economic Growth

The Britain economy progressed higher than expected in the third quarter. Yet the economist forewarned that the growth is still flat in the backdrop of the ongoing Brexit process and low productivity. The GDP rose 0.34 percent in three months to September which is much higher than the forecasted 0.3 percent from city analysts compared to the 0.3 percent in the second quarter.

Nevertheless, the economy is advancing in a much sluggish pace than the previous year. It can be said that this has been the lowest growth rate since the period of recession after rising by just 1.0 percent from January until September this year since 2009. Overall, it seems that the nation lies around 0.5 figure slower than the former E.U. referendum, described by an economist from the Commerzbank.

The services sector which holds a big part of the U.K. economy persists to support GDP growth according to the Office for National Statistics (ONS) on Wednesday. At the same time, the Manufacturing industry has also helped the GDP growth following the weak result in the second quarter. However, the construction sector slid down in the second quarter continuously.

Despite all this “marginal improvement”, this year progress has remained muted which is mainly due to Brexit that affected business investment that resulted in inflation as explained by Ben Brettell, a senior economist. Notwithstanding, another concern is the productivity where the output was deemed to have not improved compared to the 2008 financial crisis. Hence, Chancellor Philip Hammond said that this would be the focus in next month’s allocation of budget.

The British economy had the weakest growth in comparison to all G7 nations which was pulled down due to inflation after the sudden drop of the pound upon the start of Brexit vote in June 2016 which also affected the household income. The consumer price inflation reached a 3 percent growth in September which has been the steepest since April 2012 and exceeded that latest annual rate of average wage growth.

Nonetheless, there is a big possibility for the Bank of England to proceed with its rate hike next week since the GDP growth shown a good performance. Soon after the British pound increased by less than half a cent at $1.3172 after the statement from the ONS. This would induce the benchmark rate to increase up to 0.5 percent with high assurance. Yet, this would also mean that the cut would be returned to 0.25 percent which was the rate of Monetary Policy Committee (MPC) last year.

Majority of the economist foresees the economy to struggle more next year if the U.K. will proceed with Brexit in 2019 without a “transition deal” to sustain smooth operations with the customs union and the single market.