Brexit uncertainty weighs on UK GDP growth
The weak growth figures point to risk of recession this year, comments Schroders’ Senior European Economist, Azad Zangana:
- Sterling weakens against the dollar after news UK growth slowed to 0.2%
- Rise in government spending helped bolster growth
- Slow growth highlights risk of recession in the first half of this year
Growth in the UK economy slowed sharply in the final quarter of 2018 as Brexit uncertainty weighed on business investment. Real GDP growth fell from 0.6% in Q3 to just 0.2% in Q4, lower than consensus forecasts of 0.3%. The latest figures complete the numbers for 2018 where, for the year as a whole, GDP grew by 1.4% - its weakest growth rate since 2013. To make matters worse, the monthly data shows that the economy contracted by 0.4% in December. While this is only a monthly figure, it is an unusually big drop and highlights the weak state of the economy.
Within the detail of the quarterly figures, only the services sector managed to generate positive growth as output from both the construction sector and wider production sectors was down over the quarter. Looking at the contributions from expenditure, household spending remained steady, growing at 0.4%, although economy wide investment was down 0.5%. Business investment was particularly weak, contracting for the fourth consecutive quarter.
Meanwhile, government spending rose 1.4% over the quarter – its fastest quarterly rate since the first quarter of 2012. Without this odd rise in spending, GDP growth would have been negative. Finally, it’s worth mentioning that while exports accelerated over the quarter, imports grew even faster, causing net trade to slightly drag on GDP growth.
Overall, this is an ugly set of figures for the economy. Brexit is clearly having a negative impact on sentiment and growth, and it raises the risks of a recession in the first half of the year.
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