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UK economy ends 2019 on back foot as Brexit turmoil takes it toll

Tue, 11th Feb 2020 10:45

(Sharecast News) - The UK's economy stagnated during the last quarter of 2019, as the political turmoil and uncertainty surrounding Brexit weighed heavily.
According to the first estimate from the Office for National Statistics, the UK's gross domestic product was flat in the fourth quarter, in line with forecasts, against revised growth of 0.5% in the third quarter.

Year-on-year, fourth-quarter GDP rose 1.1% down, from a revised 1.2% in the previous three months.

However, the first estimate for December's GDP showed that it grew by 0.3%, compared to a 0.3% decline a month previously. That figure was slightly above expectations.

Overall, the ONS said that for the whole of 2019, GDP grew by 1.4%. That was a slight improvement on 2018, but remains one of the slowest rates of growth since the financial crisis.

Rob Kent-Smith, head of GDP at the ONS, said: "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."

Industrial production fell by 0.8% in the fourth quarter, the third consecutive quarter of decline.

"This was in part linked to changes in the timing of activity around the originally planned departure dates of the UK from the European Union in March and October," the ONS said.

"The volatility throughout the first half of 2019 has been particularly pronounced in the production sector, specifically in manufacturing. This was consistent with activity being brought forward ahead of the UK's original intended departure date, followed by a slowdown in activity in the second quarter, exacerbated by partial car plant shutdowns in April."

Construction output growth was 0.5% in the final three months of the year, while growth in the services sector slowed to 0.1%.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: "The fourth quarter remains one to forget, despite the above-consensus GDP print for December. At least the rebound in the domestic-orientated services sector in December was a little bigger than the consensus anticipated. But the 0.3% month-to-month rise in manufacturing output was minuscule, following a hefty 1.6% drop in November.

"The weak global environment looks set to continue to hold back the UK economy, particularly in light of the disruption currently being caused to global manufacturing by the coronavirus outbreak.

"The sharp reduction in domestic political uncertainly since the election, however, should enable the economy to regain momentum in the first quarter [of 2020]."

Ayush Ansal, chief investment officer at Crimson Black Capital, said: "That the economy pulled through arguably the most febrile political quarter in decades with flat growth will be seen by some as an achievement in itself. There's little to celebrate in the data, but the fact that December's growth managed to negate the fall of November will provide a certain lift to markets.

"With Brexit uncertainty reaching fever pitch, the political goalposts were changing by the day and to read too much into output during the year could be erroneous. Markets will be far more focused on how the economy performs in the first quarter of this year."

Karim Yousfi, chief global strategist at Audacity Capital, said: "That's one more bullet dodged by the UK's fragile economy. After a frustratingly stop-start year, the economy limped to the end of 2019 and avoided a contraction by the narrowest possible margin. By the lacklustre standards of the past few years, this is a passable GDP report."

Chris Towner, director at Chatham Financial, said: "Household spending, normally the reliable driver to growth in the UK, slumped to a four-year low. The question now for the first quarter of 2020 is whether we are going to witness a bounce in activity, as a reaction to the healthy majority for the more business-friendly Conservative party."

But Tej Parikh, chief economist at the Institute of Directors, the employers' body, said: "The UK economy ended 2019 in a funk, and despite a recent rise in optimism, businesses will be looking for a significant boost from the Chancellor next month.

"Uncertainly from the next stage of Brexit negotiations will increasingly play on the minds of business leaders. Meanwhile, ongoing hiccups in global growth, including the fallout from coronavirus, could eat into the economy if global financial markets and trade slow. This makes the Budget a crucial moment to get the economy moving."

The pound edged higher against both the euro and dollar on the back of the figures as traders bet that the Bank of England now had even less incentive to cut interest rates. As at 1030 GMT, sterling was trading at €1.1848 and $1.2929.

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