British economy grows more than expected after Brexit vote

LONDON (AP) – Britain’s economy grew faster than expected in the three months after its vote to leave the European Union despite concern that uncertainty would weigh on business activity.

The Office of National Statistics said Thursday that the economy grew by a quarterly rate of 0.5 percent in the July-September period thanks in particular to the services sector. The figure, which is preliminary and subject to revision, is down from the previous quarter’s 0.7 percent but beat forecasts for 0.3 percent. It’s is likely to dampen expectations that the Bank of England might offer more stimulus soon.

The data is important in that it is the most comprehensive reading since the June 23 vote.

“The economy has continued to expand at a rate broadly similar to that seen since 2015 and there is little evidence of a pronounced effect in the immediate aftermath of the vote,” said Joe Grice, the statistics agency’s chief economist. “A strong performance in the dominant services industries continued to offset further falls in construction, while manufacturing continued to be broadly flat.”

Analysts had feared the economy would to grind to a halt or even contract after the vote, which has seen some business activity take a substantial hit. The pound has plunged, an indication of investor concern about the country. But the weaker currency also helps British exporters and encouraged spending by tourists.

Treasury chief Philip Hammond appeared relieved that the economy was showing resilience.

“We are moving into a period of negotiations with the EU and we are determined to get the very best deal for households and businesses.” Hammond said. “The economy will need to adjust to a new relationship with the EU, but we are well-placed to deal with the challenges and take advantage of opportunities ahead.”

Economists warn, though, that this is only the beginning. Kathleen Brooks, the research director of City Index, said that the 20 percent drop in the pound against the dollar has helped boost the economy.

“The U.K. economy hasn’t buckled from the post-Brexit storm at this stage. But, this report isn’t all sunshine and flowers.” She said. “The economy is still extremely reliant on the service sector, and especially on tourism, which is boosting hotels and restaurants for now as the weaker pound makes the U.K. an attractive destination for travelers.”

And Samuel Tombs, chief U.K. economist of Pantheon Macroeconomics, said the adverse consequences of the Brexit vote “will become increasingly clear as inflation shoots up and firms postpone investment over the coming quarters.”