UK economy slumps in December on Brexit uncertainty

GDP figures show sharp slowdown in growth for fourth quarter as businesses cut investment

Britain’s economy grew by a smaller-than-forecast 0.2%  in the fourth quarter, compared with 0.6%  in the third quarter. December alone saw the economy shrink  0.4%. Photograph: Ben Birchall/PA Wire

Britain’s economy grew by a smaller-than-forecast 0.2% in the fourth quarter, compared with 0.6% in the third quarter. December alone saw the economy shrink 0.4%. Photograph: Ben Birchall/PA Wire

 

The UK economy buckled under the strain of Brexit uncertainty in the fourth quarter of last year.

Gross domestic product increased a smaller-than-forecast 0.2 per cent, compared with 0.6 per cent in the third quarter. December alone saw the economy shrink 0.4 per cent, the most since before the 2016 vote to leave the EU.

The slowdown came as businesses cut investment for a fourth consecutive quarter, the longest continuous decline since the financial crisis, and the weakening global economy hit trade. The annual rate of growth in the UK of 1.4 per cent was the lowest since 2012. The pound fell 0.3 per cent to $1.2909 as of 9:46am in London.

However, there was no widespread evidence of stockpiling as the prospect of a no-deal Brexit looms larger, with inventories rising just £1.6 billion in the quarter.

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While organisations such as Heathrow airport and Unilever have said they are keeping more on the storeroom shelf to guard against disruptions to supplies brought in from the EU, the Office for National Statistics said a relatively small number of firms reported doing so.

The economy is facing the worst year for growth since 2009, with economists warning of a recession if Britain leaves the EU without a deal to smooth the transition on March 29th.

Loss of momentum

The Bank of England sees growth of 0.2 per cent in the first quarter, but the sudden loss of momentum at the end to 2018 suggests the economy could stagnate, as indicated in recent purchasing manager surveys.

With wage pressure building, the bank might in different circumstances be preparing to raise interest. However, officials last week signalled they have no intention of doing so until the “fog of Brexit” has cleared.

The fear gripping business was illustrated this month when Japanese car-maker Nissan scrapped plans to build a new model in Sunderland.

Airbus, which makes wings for commercial aircraft in Britain, has also threatened to switch investment elsewhere. Business investment fell 0.9 per cent in 2018.

Brexit is not the only threat facing the economy. Major markets from the euro zone to China are losing momentum, weakening demand for British exports. – Bloomberg

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