The U.K. Economy Continues to Defy Experts
Britain’s economy did just fine in the three months after the country sent shockwaves through the world’s financial markets with its vote to leave the European Union.
Figures released Thursday by the Office for National Statistics showed that gross domestic product, the value of all goods and services produced by a country, rose 0.5% in the third quarter, down from an exceptionally high 0.7% in the second quarter but still comfortably above the 0.3% consensus forecast of economists.
The data are the latest in a string of short-term indicators that have defied a prevailing mood of pessimism in the City of London, a trend that has raised suspicions of confirmation bias among economists. London, by far the U.K.’s wealthiest region, voted by a clear majority to stay in the EU, and many in the financial services sector are painfully aware that their jobs could be threatened by the Brexit process.
The City’s ability to put a negative spin on even positive news was on display in financial markets Thursday: the pound, which has fallen 17% against the dollar since the referendum, rose only 0.5% to a pallid one-week high in response to the news, while U.K. government bonds sold off sharply. The yield on the 10-year government bond rose by 0.08 point as traders gave up hopes of a further interest rate cut from the Bank of England.
There are, naturally, good reasons for that. The full impact of Brexit will take a long time to be felt, and the inertia of existing relationships is immense. Add to that the consideration that domestic consumption was jolted higher by a rush of summer tourists taking advantage of the pound’s plunge, and it is easy to see why most economists still feel the worst is still to come. Even Treasury chief Philip Hammond, who was at pains to stress how “resilient” and “strong” the economy was, noted that it “will need to adjust to a new relationship with the EU.”
While the GDP data were essentially backward-looking, there was also some welcome news for the future of the country’s manufacturing sector, as Japanese auto giant Nissan (NSANY) made a big new commitment to its plant in Sunderland, in the north-east of England. That’s a decision that will sustain 7,000 largely high-skilled jobs in an area of the country that has struggled with deindustrialization in recent decades, along with thousands more in associated sectors such as components.
Nissan said it would build both the new generation of the Qashqai crossover and a new X-Trail SUV model in Sunderland. While the Qashqai is already made there, the company is moving production of the X-Trail away from its home factories in Japan.
It’s the kind of investment decision that U.K.-based automotive bosses fretted they would miss out on as the prospect of leaving the EU’s single market scared away globally-focused groups. Customs tariffs and all the associated paperwork would add substantially to the cost of production in the U.K., they argue. Nissan was one of the companies thought to be behind a strongly-worded warning to the U.K. by the Japanese Ministry of Foreign Affairs last month about the risks of isolation from the EU. The Japanese company isn’t short of options elsewhere in Europe, due to its strategic partnership with France’s Renault SA.
“It’s absolutely fantastic news,” Tony Murphy, national automotive officer for the labor union Unite, told the BBC. “The fact that they’re going to bring the X-Trail over from Japan to build in the Sunderland plant is better than we could have ever dreamed.”
U.K. Prime Minister Theresa May had visited Nissan earlier in the month to lobby for the decision. According to officials, the Japanese company had been shocked by the referendum result, and had taken as an almost personal insult the fact that the electoral district of Sunderland had voted to leave the EU in June by a majority of 61%-39%, compared to a national split of 52%-48%.
“The fear after the Brexit vote was that it would be easier for Nissan to move production into France,” Murphy said. “This, obviously, has turned that on its head completely.”
UPDATE: This story has been updated to add comment from the labor union Unite.