UK economy beats gloom but ‘cracks are developing’

The UK economy is confounding the doomsayers for now after faster growth at the end of 2016 — but the surprise spurt might be “as good as it gets”, experts have warned.

Sterling strengthened as the Office for National Statistics revised up growth to 0.7% between October and December, thanks to a much better performance from manufacturers than originally estimated.

Its detailed figures showed trade providing the biggest tailwind as exporters benefited from the pound’s post-Brexit weakness. But the figures also revealed slowing consumer spending — which accounts for about two-thirds of the economy — as well as a 1% fall in business investment spending by cautious firms.

Capital Economics economist Paul Hollingsworth said the data could be “as good as it gets for now at least”.

He added: “Household spending is likely to slow further as inflation picks up and erodes growth in real incomes.

“And lingering uncertainty about the UK’s future relationship with the EU as negotiations get under way may hold back investment.”

Markit chief economist Chris Williamson commented: “Cracks are developing.”

Employee compensation, which includes wages and pensions, ground to a virtual halt, rising just 0.1% over the quarter in its weakest growth since 2013. Although salaries grew, employer benefit contributions fell, the ONS said.