The UK’s economy appeared shrugged off the effects of the June 23 Brexit vote to post GDP growth of 0.5% in the third quarter compared with forecasts for a 0.4% read.

The number left economists puzzled as many had suggested that the British economy would contract as a direct consequence of the landmark referendum in which voters chose to leave the European Union. The effect on the British Pound has been devastating with the currency trading at multi-year lows against those of its key trading partners including the US dollar and the euro.

Nevertheless, the number was a drop from the 0.7% the economy posted in the second quarter and shows that the medium and long-term outlook for the British economy remains fragile.

“This GDP read will be a poke in the eye for the Brexit naysayers but investors certainly shouldn’t be under the impression that the worst is over. The effects of the vote on the UK’s economy will take time to feed through to the figures and our outlook remains gloomy,” said Jun Li Park, chief investment officer at Virtus International.

The bulk of the expansion came from strong performance in the service sector which grew by 0.8%. Industrial production, however, proved to be a drag, contracting by 0.4%.

“We expect inflation to pick up as the weaker pound feeds into rising prices and we don’t expect the March 2017 negotiations on the form Britain’s exit from the EU will take to be very conducive to confidence,” said Park.

Virtus International said it expected the pound to drift lower against the dollar and the euro in the coming months and economic growth in the fourth quarter to “moderate” noticeably.
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