The latest consumer spending figures from the Office for National Statistics (ONS) were positive, despite the ongoing uncertainty surrounding Brexit. The figures showed growth in the UK services sector of 0.4 percent following the EU Referendum decision, which was a better result than expected. Economic growth indicators were also surprisingly higher than anticipated, with Gross Domestic Product (GDP) figures at 0.7 percent, as opposed to the original estimate of 0.6 percent.
The Bank of England will likely take these into account when deciding on what to do with interest rates. A speech from Deputy Governor for Markets and Banking, Minouche Shafik, at a recent Bloomberg Markets Conference seems to play this out, when she made the point that current financial indicators point to a lesser slowing of the economy than was at first expected. This optimism was also demonstrated in the bank’s upward revision of their GDP forecast for the third quarter of 2016 in August from 0.1% to 0.3%.
She went on to emphasise that, despite positive signs, they still require more post-referendum data to help them anticipate what may be on the cards for the UK economy during and post-Brexit.
The latest Bank of England Financial Policy Committee Meeting minutes suggest that despite positive indicators, the bank will err on the side of caution:
“Although financial stability has been maintained in the UK through a period of volatility, and a number of economic indicators have picked up from their post-referendum low points, the UK faces a challenging period of uncertainty and adjustment.”
It seems that Deputy Governor Shafik is in agreement: “There is no doubt in my mind that the UK is experiencing a sizeable economic shock in the wake of the referendum. Any reduction in openness or need to reallocate resources will necessarily imply a slower rate of potential growth for the economy.”