THE UK economy ground to a halt in the fourth quarter of 2019, amid Brexit-related uncertainty, and the production sector last year posted its first annual contraction since 2013, official figures show.
Over 2019 as a whole, the UK economy grew by just 1.4 per cent. While marginally faster than the weak 1.3% expansion for 2018, the Office for National Statistics emphasised the pace of growth last year was “one of the slowest rates since the financial crisis of 2008 and 2009”.
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Business investment tumbled by 1% quarter-on-quarter in the final three months of last year, as overall gross domestic product stagnated, according to yesterday’s figures from the ONS. This was the steepest quarterly decline since the final three months of 2016.
Amid the backdrop of Brexit uncertainty, UK household spending grew by only 0.1% in the fourth quarter. This was the weakest quarterly movement since a decline in the final three months of 2015. Consumer spending growth of 1.4% over 2019 as a whole was the weakest annual increase since 2011.
Bank of England Governor Mark Carney had late last month declared “overall UK activity likely stagnated in the final quarter of 2019” as he noted “entrenched Brexit-related uncertainties” had added to the global drag on domestic activity.
The production sector’s output declined by 1.3% over 2019, the ONS figures show. This was the sector’s first annual contraction since 2013, and was driven by a 1.5% decline in manufacturing output.
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The ONS yesterday highlighted slowing momentum in the UK economy.
It said: “The underlying momentum in the UK economy continued to show signs of slowing. Quarterly GDP growth has been between 0.2% and 0.3% in 2019 on average, continuing the slowing that has been experienced over the previous five years.”
UK production output tumbled 0.8 per cent in the fourth quarter. Within this, manufacturing output fell for a third consecutive quarter, declining by 1.1% in the final three months of last year. Services sector growth slowed to just 0.1%. Construction output grew by 0.5%.
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The EY ITEM Club think-tank projects UK growth of 1.2% this year.
Howard Archer, chief economic adviser to the EY ITEM Club, said: “We expect the economy to get a lift in the early months of 2020 from a more settled domestic political environment, following the decisive December General Election and an easing of near-term Brexit uncertainties. This is expected to lead to some businesses committing to projects and investments that had been delayed in the latter months of 2019. It may also give a modest lift to consumer willingness to spend, particularly on big-ticket items.”
However, he added: “The economy may find it hard to kick on from the expected improvement in the early months of 2020, until it becomes clearer what will happen with the UK-EU relationship at the end of 2020 and the nature of the relationship thereafter. Indeed, Brexit uncertainties could build if it looks unlikely that the UK and EU will agree a free-trade arrangement by the end of the year.”
Prime Minister Boris Johnson has ruled out any extension to the transition period beyond the year-end.
On January 30, Mr Carney flagged signs of a pick-up in the UK economy in recent weeks, noting survey evidence for January consistent with a quarterly growth rate of 0.2%.
However, this growth rate would still be very weak by historical standards.
And, signalling scope for a cut in UK base rates from 0.75% in future if weakness persisted, Mr Carney said last month: “To be clear, these are still early days. It is less of a case of ‘so far, so good’, than ‘so far, good enough’.”
Looking ahead to Chancellor Sajid Javid’s March 11 Budget, Institute of Directors chief economist Tej Parikh 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.
“It’s likely that political uncertainty and unwinding stockpiles caused the economy to flag at the end of last year. However, firms entered 2020 with more of a spring in their step. Confidence has shot up, while hiring plans and investment intentions have also risen a notch, but the post-election bounce may tail off.”
Mr Parikh added: “Uncertainty 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.”
The Herald will host a post budget briefing breakfast, where we will hear from Political Correspondent Iain Macwhirter and a panel of experts on their thoughts and analysis of the overall budget, the morning after the chancellor’s announcement.
The event organised by The Herald and supported by Brown Shipley, Campbell Dallas, Wright, Johnston & Mackenzie LLP and 200SVS will bring together business leaders from across Scotland and provide an opportunity to learn and network amongst a variety of sectors.
The event will take place on Thursday, March 12 from 8am-10.30am at 200SVS in Glasgow. To book reserve your place please visit -http://newsquestscotlandevents.com/events/budget-briefing-breakfast
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