The latest NIESR estimate suggested that GDP growth rose 0.5% in the three months to December. This was unchanged from the November estimate, which was revised up from the original estimate of 0.4% and also in line with consensus market expectations.
On an annual basis, the data suggested that GDP rose 2.0% in 2016 from 2.2% in 2015 and close to the long-term potential growth rate.
On a monthly basis, the NIESR estimated that output in industry declined slightly in December following a sharp recovery in November, although there was a year-on-year gain of 2.8%, which will offer some encouragement. Output in agriculture and construction was estimated to have been unchanged.
Output in the private services sector declined slightly for the month with 3.7% growth over the year, while there was a small increase in government spending.
The 2016 data matched the NIESR forecast released in early November and it expects a slowdown in GDP growth to 1.4% for 2017 with the CPI inflation rate expected to reach 3.8% at the end of 2017.
There will be expectations of a slowdown in consumer spending during 2017 as real incomes growth is undermined by the increase in inflation.
It will, therefore, be crucial for the production sector to make significant headway to help cushion the economy from any slowdown in the consumer sector. In this context, industry will need to take advantage of a competitive exchange rate.
There was no significant market reaction with the dollar gaining support into President Trump’s press conference and GBP/USD retreated to re-test support in the 1.2100 area.