Buoyant consumer spending kept the UK economy growing at the brisk pace of 0.6% in the final quarter of 2016, marking a strong finish to the year despite the Brexit vote.

The initial estimate for fourth-quarter GDP from the Office for National Statistics matched the 0.6% growth recorded in the third and second quarters. It was a touch better than the 0.5% rise expected by City economists. The pound hit a fresh six-week high of $1.2673 just before the data was released.

The economy’s resilience has confounded forecasters, some of whom feared the UK would slip into recession following the shock outcome of the EU referendum in June. However, economists are still expecting a slowdown this year as higher inflation affects consumers’ ability to spend.

In 2016, the UK economy grew by 2%, slower than the previous two years, which showed growth of 2.2% and 3.1% respectively.

Alan Clarke, of Scotiabank, noted that the first six months since the Brexit vote had seen growth of almost 2.5% annualised, which is above the economy’s trend rate. “Clearly, life goes on, despite the Brexit vote.”

Chris Hare, UK economist at Investec, said: “There are scant signs (yet) of a Brexit-related slowdown in the economy … We do still expect the modest slowdown in economic growth this year. Brexit-related uncertainty has not disappeared and might begin to weigh noticeably on business spending.

“More importantly, the sterling-related inflation squeeze on households is only just beginning – we expect the inflation rate to roughly double by the end of this year from the latest estimate of 1.6%.”

The ONS said fourth-quarter GDP growth was dominated by services (worth nearly 80% of the economy), with a strong contribution from retail sales and travel agency services as consumers continued to spend in shops and online. Business services and finance industries were also strong at the end of last year.



The services sector grew 0.8% between October and December, while industrial production was flat and construction edged up 0.1%. Within production, manufacturing posted a strong gain of 0.7% mainly due to pharmaceuticals exports, which tend to be erratic, but this was offset by a sharp drop in oil production caused by a change in timing of maintenance in a North Sea oil field. Agriculture returned to growth, of 0.4%, after three quarters of decline.

The head of GDP at the ONS, Darren Morgan, said: “Strong consumer spending supported the expansion of the dominant services sector and although manufacturing bounced back from a weaker third quarter, both it and construction remained broadly unchanged over the year as a whole.”

A separate survey from the business lobby group CBI showed retail sales volumes fell unexpectedly in the year to January, but sales are expected to return to growth next month. Grocers suffered the sharpest drop in sales since August 2004, while clothing retailers and department stores continued to see solid growth.

GDP. Photograph: ONS

The government was quick to seize on the GDP figures as evidence that the UK would fare well outside the EU. The chancellor, Philip Hammond, said: “Every major sector of the economy grew last year, which is further evidence of the fundamental strength and resilience of the UK economy.

“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, the TUC noted that GDP growth in the seven years since the financial crisis had averaged 2% a year, lower than the 2.7% in the seven years before.

The TUC general secretary, Frances O’Grady, said: “Our economy may have been resilient in the face of the Brexit vote, but GDP growth is stuck in the slow lane. And people are still feeling the financial crisis in their pockets.

“This isn’t a time for government complacency. 2017 will be a challenging year, so ministers can’t let us sleepwalk into another living standards crisis. Working people must not be forced to pay the price for Brexit. March’s budget must set out a plan to boost wages, and seriously invest in developing our infrastructure and public services.”

Mark Whittaker, chief economist at the Resolution Foundation, a thinktank, said the recovery since the 2008 financial crash had been much slower than after previous recessions on a GDP per capita basis (growth divided by population). Growth in GDP per head briefly returned to pre-crisis levels in 2014, but has fallen back since, to 1.3% in 2016.

Samuel Tombs, the chief UK economist at Pantheon Macroeconomics, warned: “The economy’s brisk growth at the end of 2016 has 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.”