The United States economy continues to demonstrate remarkable resilience against a backdrop of persistent inflation and geopolitical instability, while a new Treasury analysis from the United Kingdom suggests the long-term impacts of Brexit may be less severe than initially modelled. This dual narrative of economic endurance in the face of structural challenges is reshaping policy discussions on both sides of the Atlantic.
Data released this morning by the US Bureau of Economic Analysis shows Gross Domestic Product (GDP) expanding at an annualised rate of 3.2 per cent in the third quarter, defying consensus forecasts that had predicted a slowdown to 2.5 per cent. Consumer spending, which accounts for roughly two-thirds of economic activity, rose 2.8 per cent month-on-month, driven by a surprisingly robust labour market. Unemployment remains at a historic low of 3.5 per cent, while wage growth has finally begun to outpace inflation for the bottom quartile of earners. The resilience is all the more striking given the Federal Reserve's aggressive tightening cycle, which has lifted interest rates to levels not seen since the early 2000s.
Dr. Lena Petrova, an economist at the Brookings Institution, described the figures as “a thermodynamic anomaly in an otherwise cooling system.” She added: “The consumer is acting like a superconductor, transmitting demand with zero resistance, even as the monetary environment turns hostile. But such defiance cannot last indefinitely. Core inflation, stripped of volatile food and energy prices, remains at 4.2 per cent, and the inventory cycle is turning negative. The third quarter may represent the peak of this expansion.”
Meanwhile, across the Atlantic, a leaked draft from His Majesty’s Treasury has modelled a series of post-Brexit scenarios that paint a more moderate picture of the economic costs than earlier official projections. Previous estimates by the Office for Budget Responsibility had suggested that leaving the European Union would reduce long-run GDP by around 4 per cent relative to remaining. The new analysis, which incorporates updated trade data and sectoral performance since the 2020 Trade and Cooperation Agreement, now suggests a drag of between 1.5 per cent and 2.5 per cent.
The revision stems largely from the unexpected adaptability of the UK’s services sector, particularly financial and professional services, which have managed to retain significant access to EU markets through equivalence arrangements and subsidiary operations. Exports of services to the EU fell by only 3 per cent in 2022, a far smaller decline than the 10 per cent drop in goods. The Treasury model also notes that the UK’s departure has allowed for a more agile regulatory framework in areas such as data protection, digital trade, and artificial intelligence, attracting foreign direct investment from non-EU sources.
However, the report warns that the benefits are unevenly distributed. Manufacturing, particularly in the automotive and aerospace sectors, continues to struggle with customs friction and labour shortages, with output still 7 per cent below pre-referendum trends. Small and medium-sized enterprises are disproportionately affected by the administrative burden of new trade paperwork, which has increased compliance costs by an average of £20,000 per firm per year.
“The narrative of Brexit as an unmitigated economic disaster is not supported by these numbers,” said Professor James Milford of the London School of Economics. “But neither is it a triumph. The UK has adapted, but it remains a smaller, more peripheral economy than it would have been as part of the bloc. The resilience is real, but it is a resilience born of pragmatic coping mechanisms, not structural strength.”
For the US, the immediate challenge is sustaining momentum without igniting a wage-price spiral. Core services inflation, excluding energy and housing, remained sticky at 4.8 per cent, and the Fed has signalled that rates may need to stay higher for longer. The Treasury yield curve continues to invert, with the 10-year note yielding 4.35 per cent against the 2-year’s 4.97 per cent. This inversion has historically preceded recessions by 12 to 18 months, though the current expansion has already surpassed normal business cycle lengths.
Both economies now face a critical test: whether the current resilience is a sign of genuine structural adaptation or merely a temporary reprieve before the delayed effects of tighter monetary conditions materialise. The answer will shape policy choices for the rest of the decade.
