Surprise rise in business investment since the vote to leave the EU (Financial Planning )

A surprise rise in business investment since the vote to leave the EU combined with robust consumer spending and exports drove economic growth in the third quarter, official figures have shown (Financial Planning).

The Office for National Statistics confirmed that the economy grew by 0.5 per cent in the three months to September compared with the previous quarter, with the largest contribution coming from net trade.(#Financial Planning#)

Business investment grew by 0.9 per cent quarter-on-quarter, defying expectations from economists that it would fall by 1 per cent in the three months after the Brexit vote over fears that companies would defer or cancel investment plans due to economic uncertainty. This rise helped to push overall investment up 1.1 per cent on the quarter. Compared with last year, however, spending by businesses was still 1.6 per cent lower.

The ONS also warned that many investment decisions would have been made before the EU referendum result and that it would take time for companies to adjust their investment plans. ( Financial Planning. )

Darren Morgan, head of GDP at the ONS, said: “Investment by businesses held up well in the immediate aftermath of the EU referendum, though it’s likely most of those investment decisions were taken before polling day.”

Alan Clarke, of Scotiabank, said: “Things are never black and white. Projects to build planes, ships and buildings will have been signed off 12-18 months ago and that activity won’t shut off overnight.”

Nina Skero, managing economist at the Centre for Economics and Business Research, said that maintaining robust levels of investment in the coming months will depend on clarity from the government over Brexit negotiations.

“Although it is likely that some of the third-quarter spending decisions were made before Brexit and could not be cancelled, it is also evident that many firms have maintained their trust in the strength of the UK economy,” she said.

“Business investment in the coming year will depend heavily on the progress of EU negotiations and how much guidance is provided by the government’s Brexit negotiation team. A continued lack of clarity will only increase the degree of uncertainty and could lead businesses to delay further investment.”

However, the biggest the contribution to economic growth in the third quarter was net trade, which increased by 0.7 percentage points, as export volumes rose 0.7 per cent while imports fell 1.5 per cent. The contribution to overall economic growth from trade was the highest since the start of 2014. The ONS did not say whether this was due to the weak pound already beginning to push up demand for British exports.

Household spending also rose 0.7 per cent from the second quarter, mirroring recent surveys of consumer confidence, which have shown consumers unfazed by fears of an economic slowdown. However, there are doubts over how long this robust level of consumer spending can continue once the weak pound begins to push up the cost of everday goods and services and weaker economic growth begins to emerge.

James Knightley, senior economist at ING Bank, said: “This is a firm growth story that again shows the economy has weathered the Brexit storm very well so far.

“The data flow so far suggests that the fourth quarter should also post a decent growth rate, but we still expect a substantial slowdown in 2017.”

The figures come a day after the Institute for Fiscal Studies (IFS) said that UK households were facing the sharpest squeeze on living standards since at least the Second World War. In its analysis, based on official forecasts from earlier this week, the IFS said real pay will still be below pre-2008 levels in 2021 and may take many years to catch up.

Tom Knowles, Economics Correspondent The Times