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How the UK’s 3Q16 GDP Surprised Markets

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Aug. 18 2020, Updated 9:31 a.m. ET

UK GDP in the third quarter

According to a report from the UK Office for National Statistics, the UK’s (EWU) economic growth stood at 0.5% in 3Q16. This figure beat the market expectation of a 0.3% rise. However, in 2Q16, the GDP growth was at 0.7%.

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Brexit decision and its impact

On June 23, 2016, UK citizens voted to leave the European Union (EZU) (VGK). Major markets across the globe (ACWI) (VTI) fell immediately after the announcement of the referendum results on June 24, 2016. All the markets showed a huge sell-off on that day. The volatility index also rose nearly 56% between June 23 and June 24, 2016.

Many market participants, fund managers, and billionaire investors said that the UK’s decision will affect its economic growth. According to the Organization for Economic Co-operation and Development, the baseline effect could be -1.3%, -3.3%, and -2.5% on the United Kingdom’s real GDP in 2018, 2020, and 2023, respectively. However, the current GDP figure indicates that Brexit concerns are slowly easing.

In 3Q16, the service sector contributed the most to the UK’s GDP as compared to the industrial sector. UK-based service sector firms such as Barclays (BCS) and Royal Bank of Scotland (RBS) rose 0.76% and 2.6%, on October 27, respectively, after the announcement of the GDP report. Read What’s Been Helping the UK GDP after the Brexit Vote? to learn more.

In the next part of this series, we’ll analyze the flash manufacturing PMI for the Eurozone.

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