Post-Brexit momentum maintained at the start of 2017

Following a strong end to 2016, the economy appears to have carried a decent amount of momentum over into 2017. Despite a slight fall in the Markit/CIPS all-sector PMI in January, it is still at a level consistent with quarterly GDP growth of around 0.5%. Accordingly, we remain comfortable with our recent upward revision to our GDP growth forecast for 2017 from 1.5% to 1.8%, which would be down only slightly from 2016’s 2% rate. There have also been signs that growth will become slightly more balanced in 2017. Indicators point to a rise in export volumes growth and a slowdown in consumer spending growth. Meanwhile, the rise in the manufacturing PMI balance above the services PMI suggests that some of the burden for driving growth this year will shift away from the services sector. Indeed, we think that the fall in the pound will result in manufacturing sector growing faster than the services sector for the first time since 2011.