Foreign Affairs

British Economy Shows Signs Of Growth After Brexit

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The British economy ended 2016 on a high note, clocking unexpected gains in the wake of Brexit.

Gross domestic product (GDP) rose by 0.7 percent in the final quarter of 2016, revised from the originally anticipated 0.6 percent growth rate predicted by economists. The faster-than-anticipated growth is largely due to an increase in manufacturing and an uptick in net trade. Overall, growth in 2016 was 1.8 percent higher than 2015, the Office for National Statistics reports.

Not all figures were as rosy for Great Britain. While household spending increased by 0.7 percent in the final quarter, it slowed from the previous quarter, marking the slowest growth rate in household spending in a year. Business investment also fell in the fourth quarter.

The Bank of England predicts that consumers will get squeezed by a weaker Pound, which fell 16 percent since the June 23, 2016, Brexit vote. The central bank suggests that consumers spending could take a hit as inflation continues to rise.

Bank of England may not be off base with its predictions. Credit growth experienced a sharp downturn in the final quarter, and retail sales and employee compensations also grew at the slowest annual pace in three years.

One of the larger questions facing British economy will be: can Britain sustain these gains in the midst of the impending Brexit negotiations, a weakening Pound, and slower growth in business investment?

There are a few scenarios in which the British economy sees its way through what is anticipated to be a tumultuous Brexit.

For example, a weaker Pound is likely to drive up prices in the British economy, which could in turn work to squeeze consumer spending as goods cost (relatively) more and more. A weaker Pound, however, could work to bolster exports, which would help to offset any losses in consumer spending if the interest rates rise.

The European Commission stated Wednesday that exports would contribute to growth for the British economy for the next two years. If that is the case, Great Britain has some hope of making it through the next two years of negotiations with the European Union with healthy economy.

The Commission is not the only institution now predicting a smooth Brexit. Bank of England Governor Mark Carney is now giving a more optimistic outlook for the future of Great Britain after Brexit. And this optimism comes after ominously warning in May, 2016, that a British exit from the European Union (EU) would likely result in a “technical recession.” (RELATED: Doomsday Brexit Predictor Now Changing His Tune)

Nearly eight months after the June 23, 2016, Brexit decision, Carney appears to be altering his outlook on Brexit. “There are scenarios where this process proceeds relatively smoothly to an increasingly clear end point and that will be consistent with a higher path for interest rates,” he told reporters Tuesday.

The path to a smooth Brexit will be achieved by negotiating “bold, ambitious” trade deals with the EU and other global trading partners.

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