British business investment robust after Brexit vote

British companies brushed off the uncertainty over Brexit in the three months after June’s referendum and increased their investment, helping to drive solid growth in the economy, official data showed.
Business investment expanded at a quarterly rate of 0.9 percent in the three months to September, the Office for National Statistics said, beating expectations for a 0.6 percent rise in a Reuters poll of economists.
Britain’s economy overall grew by 0.5 percent in the third quarter, the ONS said, helped by a rebound in exports and robust household spending, the ONS said. A separate survey showed retail sales growing at the fastest pace in more than a year this month and suggested strong consumer spending will continue to drive the economy in the fourth quarter.
Britain’s economy has performed much better than most economists had expected in the immediate aftermath of June’s vote to leave the European Union. But a much bigger test awaits next year.
Rising inflation caused by the pound’s post-referendum plunge looks set to squeeze household spending and economists said they still expected business investment to slow.
“So far, so good, then,” HSBC economist Elizabeth Martins said. 
“But we find it hard to believe that the economy can sustain this pace of expansion, given the indications from business surveys and growing price pressures.”
Britain’s business investment statistics are prone to big revisions and the ONS said most of the investment decisions captured in Friday’s data probably took place before the Brexit referendum.
While tech giants Facebook and Google and carmaker Nissan have committed to investing in Britain since the vote, some business surveys suggest the scores of smaller firms have curbed plans for capital spending recently.
In a move aimed at offsetting the likely slowing of private investment in the next couple of years, finance minister Philip Hammond recently announced he will borrow 23 billion pounds ($29 billion) to invest more in housing, transport and digital infrastructure over the next five years.
The strong retail sales figures from the Confederation of British Industry on Friday chimed with the official data showing households increased their spending by 0.7 percent in the third quarter, slowing slightly but still helping to drive the economy in the face of uncertainty around Brexit.
But the outlook for household spending looks doubtful. The Institute for Fiscal Studies think tank warned of “dreadful” wage growth on Thursday with wages set to be lower in inflation-adjusted terms in 2021 than they were in 2008.
Net trade added 0.7 percentage points to economic growth in the third quarter, the biggest positive contribution since early 2014 and helped by strong growth in exports after the pound’s post-referendum plunge.
“So the weak pound may already be delivering some upsides,” said Martin Beck, senior economic adviser to the EY ITEM Club consultancy. 
“But the downsides of that weakness in pushing up inflation means that GDP growth in the near-term may struggle to match Q3’s performance.”
The economy overall expanded 2.3 percent versus the same period a year earlier, unchanged from a preliminary estimate.
Britain’s independent budget forecaster said on Wednesday that the economy looks set to slow sharply next year, expanding by around 1.4 percent, down from about 2.1 percent this year.
Services output increased 0.8 percent in the July-September period, compared with a 0.9 percent slide in manufacturing and a 1.1 percent drop in construction output.
Sterling, meanwhile, steadied Friday on track for its best run of weekly gains against the euro since early 2015, with investors switching their primary focus from the political risks facing Britain as it exits the EU toward those facing the euro zone.
Against the dollar, sterling is still down 16 percent since the Brexit vote, though it was 0.1 percent up at $1.2458 on Friday. 
Analysts are split over the broader outlook for sterling heading into early 2017, when Article 50 is due to be triggered, kicking off formal Brexit talks with Brussels.
“There seems to be a call for a near-term rally in sterling; we don’t really see that,” said ING currency strategist Viraj Patel. “What we’re looking for is another layer of bad news and we suspect we may get it in the first quarter of next year.”

Source: Arab News