UK manufacturing defies Brexit fears with strong end of year

British manufacturing grew more strongly than expected in December, demonstrating that the economy remained resilient despite June's Brexit vote shock, although 2017 looks like it will be more difficult.

Official data released on Friday also show the UK’s smaller construction sector grew more quickly in December than many economists had forecast, while the trade deficit narrowed.

Britain's economy was the strongest among the Group of Seven richest nations last year, confounding predictions of a sharp slowdown following the decision by voters to leave the European Union. But it is widely expected to slow this year as rising inflation eats into the spending power of consumers.

The Bank of England has signalled that it is in no hurry to raise interest rates from their record low.

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Sterling rose after Friday’s data, trading around 85p against the euro, and British government bond futures modestly extended losses.

“The economy has been remarkably strong in the third and fourth quarter, but things might become more challenging in the middle of this year,” said Commerzbank economist Peter Dixon.

UK prime minister Theresa May is due to launch the Brexit process by the end of March, kicking off potentially difficult negotiations with the rest of the EU that may deter companies from making long-term investments.

Services sector

The main driver of Britain’s growth in recent years has been the dominant services sector. But Friday’s figures show that manufacturing grew strongly in the October-to-December period, up 1.2 per cent from the previous three months, the strongest performance since the referendum.

In December, manufacturing output jumped by 2.1 per cent, much more than the 0.5 per cent rise forecast by a Reuters poll of economists. However, the Office for National Statistics (ONS) said the increase was due in large part to the often volatile pharmaceuticals sector.

Compared with December 2015, manufacturing was up 4 per cent, the strongest increase since April 2014.

Industrial output overall rose 1.1 per cent in December, stronger than expectations for a 0.2 per cent increase in the Reuters poll. This took the year-on-year growth figure to 4.3 per cent, the strongest since January 2011.

Britain’s construction sector also grew by more than expected, up 1.8 per cent in December from November, helped by the building of houses and commercial property.

The ONS said it was not revising its preliminary estimate that Britain’s economy grew by 0.6 per cent in the fourth quarter of 2016.

Reuters