Little sign that the economy has slowed in Q4

Both households and businesses appear to have been undeterred by Brexit uncertainty in Q3. What’s more, the latest business surveys suggest that the economy will turn in another solid performance in Q4. Gains in both the Markit/CIPS services and construction PMIs in November left the economy-wide composite PMI looking consistent with quarterly growth in GDP of around 0.5% in Q4 so far, in line with Q3’s rate. Admittedly, the surveys also brought more evidence of rising price pressures, raising concerns that growth will slow further ahead as households’ real incomes are squeezed. But we suspect that importers and retailers will absorb some of the increase in imported costs, suggesting that the rise in inflation won’t be too stark by past standards. Overall, we think that GDP growth will only moderate from around 2.0% this year to about 1.5% in 2017.