Britain’s economy grew faster than previously thought in the three months after the EU referendum, underlining the miscalculations by the Treasury and other forecasters who predicted that the UK would suffer a recession following a vote for Brexit.
Official figures showed GDP growth in the third quarter rose by 0.6%, compared with initial estimates of 0.5%.
The unexpected upgrade to GDP came as the Office for National Statistics made surprise revisions across all sectors of the economy. The services, industrial and construction sectors were all revised upwards.
The services sector – which accounts for about 80% of economic activity – was the main driver of growth, led by transport and communications – including online retail deliveries – which expanded by 2.6%. The finance sector grew by 0.8% quarter on quarter.
But the first two quarters of the year were revised down by one percentage point each. This left the annual growth rate at 2.2%, which was lower than the earlier estimate of 2.3%.
Analysts warned that the revised figures emphasised the UK’s lopsided recovery, with higher growth in the City and consumer spending while the manufacturing sector continued to decline, falling by 0.8% in the third quarter, and a sharp decline in net trade.
The ONS said wages jumped by 4.5% to their highest growth rate since 2013. But rising inflation and the impact of cuts to benefits meant disposable incomes shrank by more than the ONS said in its first estimate of third quarter GDP last month. Household disposable income, adjusted for inflation, decreased by 0.6%, which confirmed a dramatic turnaround from the increase of 3.6% in the same quarter last year.
Paul Hollingsworth, UK economist at consultancy Capital Economics, said: “As a result of the fall in disposable income, households were only able to fund the rise in spending by reducing the proportion of their income that they save. The household saving ratio fell from 6.3% in the second quarter to 6.1% in the third, its lowest since 2008,.”
Net trade, or the balance between exports and imports, also slumped to -1.2% from +0.3% to register the biggest drag from the export sector on GDP since the second quarter of 2012.
A spokesperson for the Treasury said: “The fundamentals of the UK economy are strong, but there remain challenges ahead. The chancellor set out, in the autumn statement, his plan to support a resilient economy that works for everyone by driving productivity and supporting working people, while maintaining fiscal discipline.”