Britain's economy going strong with better than expected growth in final quarter of 2016

Office for National Statistics estimates the UK economy grew 2% in 2016 as a whole, down from 2.2% in 2015.

Theresa May warns big business to play by rules as she promotes Britain at Davos 2017Reuters

The UK economy grew slightly faster than expected in the final three months of the year, and it fared better than expected over the last 12 months as a whole, according to official figures released on Thursday (26 January).

The Office for National Statistics (ONS) reported that Britain's gross domestic product (GDP) grew 0.6% on a quarterly basis in the three months to the end of December, slightly ahead of the 0.5% analysts expected. The rate of growth was unchanged from the previous two quarters.

The figure was also marginally higher than the 0.6% advance recorded in the previous three months.

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The ONS added the services sector was the driver, with a strong contribution from consumer-focused industries such as retail sales and travel agency services.

Meanwhile, the year-on-year reading showing Britain's economy expanded 2.2% in the third quarter, down from the 2.3% reading recorded in the corresponding period in the previous year and compared with analysts' expectations for a 2.1% reading.

The ONS estimated Britain's increased by 2.0% during 2016 as a whole, slowing slightly from 2.2% in 2015 and from 3.1% in 2014. Britain's economy is now 8.7% higher than its pre-crisis peak in 2008, although it is only 1.9% bigger on a per capita basis (adjusted for population changes).

Speaking in Reading, Philip Hammond welcomed the latest report but admitted the uncertainty surrounding Britain's economic future was yet to be resolved.

"Every major sector of the economy grew last year, which is further evidence of the fundamental strength and resilience of the UK economy," he said.

"There may be uncertainty ahead as we adjust to a new relationship with Europe, but we are ready to seize the opportunities to create a competitive economy that works for all."

However, despite the better-than-expected figures, analysts warned the outlook for the UK economy remained gloomy.

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"The forthcoming rise in inflation will probably hit the recently strong-performing consumer services sector, while the more competitive exchange rate should help to bolster industrial activity," said Ruth Gregory, UK economist at Capital Economics.

"Despite the economy's recent resilience, growth still looks set to slow in 2017 as higher inflation takes some of the steam out of household spending. That said, we don't expect the slowdown to be too severe."

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the brisk growth at the end of 2016 had all the hallmarks of being driven by an "unsustainable" consumer spending spree.

"We continue to expect slowdowns in business investment and consumer spending to cause GDP growth to slow to an average quarter-on-quarter rate of just 0.2% or so in 2017—slow enough to keep interest rate hikes at bay despite high inflation," he added.

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