The British economy stagnated in the final quarter of 2019 despite an uptick in December as high political uncertainty weighed on business investment, consumer spending and manufacturing production.
There was zero growth in gross domestic product in the final three months of the year compared with the previous three months, according to data released by the Office for National Statistics on Tuesday.
The reading is down from an upwardly revised 0.5 per cent expansion in the third quarter, and was in line with economists’ expectations.
“There was no growth in the last quarter of 2019 as increases in the services and construction sectors were offset by another poor showing from manufacturing, particularly the motor industry,” said Rob Kent-Smith, head of GDP at the ONS.
However, the economy expanded 0.3 per cent in December compared with the previous month, providing the first economic data for the period after the December 12 general election.
This was better than the 0.2 per cent expected by analysts and it is in line with sentiment indicators — such as the purchasing managers’ indices and the housing surveys — pointing to a pick-up in activity in the post-election period.
Sajid Javid, the chancellor, said the UK had “broken the deadlock” of leaving the EU and needed “to seize this moment to level up and prepare our great nation for long-term success”.
Manufacturing production fell 1.1 per cent compared with the previous three months, reflecting widespread declines across 11 of the 13 industries covered, but was dragged down by car production, which slipped 1.9 per cent.
“Manufacturers in particular have been hit hard by a potent cocktail of trade wars, slowing world markets and falling consumer demand,” said Seamus Nevin, chief economist at Make UK, the manufacturers’ organisation. “Business confidence in industry remains fragile with concerns about our future trade rules meaning that the taps of investment are unlikely to be turned on anytime soon.”
Business investment contracted 1 per cent compared with the previous quarter, the biggest drop since the end of 2016 and resulting in a level that had barely changed since the EU referendum in 2016.
Since then, business investment has grown below both peer countries and UK historical standards as companies waited for an outcome to the Brexit impasse and general election.
“We remain sceptical that investment will see a dramatic revival,” said James Smith, economist at ING. “Whether a free trade agreement is signed this year or not, there’s likely to be a wave of new friction for traders at the start of 2021.”
Growth in the services sector — which accounts for about 80 per cent of the economy — pushed the economic growth out of contraction. However, services output growth slowed to 0.1 per cent in the last quarter compared with the previous quarter, down from a growth rate of 0.5 per cent in the third quarter and the weakest rate since mid-2016.
The slowing in the services sector was driven by wholesale and retail trade activities, reflecting softer household spending growth, which declined to 0.1 per cent in the fourth quarter from 0.8 per cent in the previous one.
Weaker consumer spending was partially offset by increased government spending, which added 0.4 percentage points to GDP growth.
Across the whole of 2019, GDP was estimated to have increased 1.4 per cent, slightly above the 1.3 per cent growth seen in 2018, but well below the rate of about 2 per cent or above of the previous five years.
In its last monetary policy report, the Bank of England warned that “if growth stays weak, interest rates could fall”.
Sterling, which had been trading around its lows of the year earlier on Tuesday, rose 0.2 per cent to trade back above $1.29.
“More positively, recent survey indicators suggest that confidence has picked up at the start of this year,” said Jack Leslie, economist at the Resolution Foundation think-tank. “The UK is now waiting to see if this improved mood turns into hard economic data.”
Source: Economy - ft.com
