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| UK economy contracts in December as pre-Brexit slowdown bites - business live | UK economy contracts in December as pre-Brexit slowdown bites - business live |
| (35 minutes later) | |
| Here’s another neat chart from Rupert, putting the UK slowdown in context: | |
| UK economic growth of 1.3%y/y in Q4 2018 puts it in the middle of the pack for those OECD countries that have reported thus far. Before we get too excited though, the pack is not exactly going great guns... pic.twitter.com/nE3jF1EV8S | |
| UK service companies, builders and manufacturers all had a relatively tough 2018, with growth the weakest in at least five years. | |
| The ONS says: | |
| Headline annual gross domestic product (GDP) growth was 1.4% in 2018, the lowest it has been in six years. | |
| Meanwhile, the services sector had annual growth of 1.7%, the lowest since 2011 and the production sector had annual growth of 0.7%, the lowest since 2013. Construction annual growth was 0.6%, the lowest since 2012 | |
| When company bosses are nervous about the future, they stop buying new machinery and put off expanding into new premises. | |
| That makes business expenditure a good measure of the underlying health of the economy, as (used wisely) it should deliver faster growth and higher productivity. | |
| So the recent slide in business spending is a concern; these charts from economist Rupert Seggins shows the scale of the deterioration: | |
| 1. UK fixed investment fell again, by -1.4%y/y, the third fall in a row. This was driven by business investment (-2%y/y contribution) and for the first time since Q1 2013, housing investment (-0.1%y/y contribution). It was left to government investment to provide any boost. pic.twitter.com/jrPwHaehCa | |
| 2. In terms of the what, there was only one source of boost to growth, which was non-residential buildings % costs of ownership transfer (0.8%y/y contribution). Transport, ICT and intellectual property investment all fell, as did housing investment. Not a pretty picture. pic.twitter.com/NCeq21XQw9 | |
| Yael Selfin, chief economist at KPMG UK, is also concerned, saying: | |
| “It is particularly worrying to see business investment contracting significantly again, as it will impact the UK’s longer term productive capacity as well as productivity performance, and points at a low vote of confidence from business in the UK’s future. The contraction in manufacturing, despite the relatively weak pound and while the UK economy is still enjoying the benefits of the EU trade framework is also a worry for what to come. | |
| “As on many other occasions, the economy was bolstered by households who continued to spend, albeit more reluctantly, and by a pick-up in government spending, which will not be sustainable in the long run. We need to see a recovery in business confidence and investment to get the UK economy moving again.” | |
| You can see the UK GDP report online, here. | You can see the UK GDP report online, here. |
| While quarterly GDP data are volatile (and monthly even more so), the long-term picture of UK growth is clear: | While quarterly GDP data are volatile (and monthly even more so), the long-term picture of UK growth is clear: |
| Quarter-on-quarter GDP growth in the last quarter of 2018 was 0.2%. Weak, but not the weakest of 2018 - it was just 0.1% back in Q1 2018. Overall, not a good year for GDP growth. pic.twitter.com/3Ewibfu5nZ | Quarter-on-quarter GDP growth in the last quarter of 2018 was 0.2%. Weak, but not the weakest of 2018 - it was just 0.1% back in Q1 2018. Overall, not a good year for GDP growth. pic.twitter.com/3Ewibfu5nZ |
| Economist Sam Tombs is hopeful that Britain will avoid a recession this year: | Economist Sam Tombs is hopeful that Britain will avoid a recession this year: |
| December GDP data look awful, but the drop was driven by the construction and retail sectors, which are always volatile. Keep calm and carry on expecting slow growth, not a recession. pic.twitter.com/Y2yNZg8NnG | December GDP data look awful, but the drop was driven by the construction and retail sectors, which are always volatile. Keep calm and carry on expecting slow growth, not a recession. pic.twitter.com/Y2yNZg8NnG |
| Chancellor Philip Hammond has pointed out that the UK economy “continues to grow”, overlooking the fact it did quite the opposite in December. | Chancellor Philip Hammond has pointed out that the UK economy “continues to grow”, overlooking the fact it did quite the opposite in December. |
| Here is my response to today’s #GDP figures. pic.twitter.com/AdGyXFvakl | Here is my response to today’s #GDP figures. pic.twitter.com/AdGyXFvakl |
| Ben Brettell, senior economist at Hargreaves Lansdown, says the UK economy was buffeted by problems at home and overseas: | Ben Brettell, senior economist at Hargreaves Lansdown, says the UK economy was buffeted by problems at home and overseas: |
| There’s little doubt Brexit uncertainty is responsible for the disappointing numbers, though concerns over global trade will also have played a part. | There’s little doubt Brexit uncertainty is responsible for the disappointing numbers, though concerns over global trade will also have played a part. |
| Business investment – the most Brexit-sensitive element of GDP - dropped 3.7% Q4 against a year earlier, the biggest fall since early 2010. | Business investment – the most Brexit-sensitive element of GDP - dropped 3.7% Q4 against a year earlier, the biggest fall since early 2010. |
| The UK isn’t the only country that struggled to post strong growth in the last quarter of 2018. | The UK isn’t the only country that struggled to post strong growth in the last quarter of 2018. |
| Italy’s economy shrank by 0.2%, putting the eurozone’s third-largest member into recession. | Italy’s economy shrank by 0.2%, putting the eurozone’s third-largest member into recession. |
| France did better, expanding by 0.3% despite the disruption caused by the gilet jaune protests. | France did better, expanding by 0.3% despite the disruption caused by the gilet jaune protests. |
| The wider European Union grew by 0.3%, while the eurozone only managed 0.2%. | The wider European Union grew by 0.3%, while the eurozone only managed 0.2%. |
| Germany’s GDP data is due on Thursday; it’s expected to show growth of just 0.1%, following a small contraction in the summer. | Germany’s GDP data is due on Thursday; it’s expected to show growth of just 0.1%, following a small contraction in the summer. |
| We’re also waiting for US GDP, which has been delayed by the Federal shutdown. It’s likely to show growth of around 0.6% for the quarter. | We’re also waiting for US GDP, which has been delayed by the Federal shutdown. It’s likely to show growth of around 0.6% for the quarter. |
| Several economists are blaming uncertainty about Britain’s exit from the EU for the sharp slowdown in UK growth in the last quarter, to just 0.2%. | Several economists are blaming uncertainty about Britain’s exit from the EU for the sharp slowdown in UK growth in the last quarter, to just 0.2%. |
| Tej Parikh, Senior Economist at the Institute of Directors, explains: | Tej Parikh, Senior Economist at the Institute of Directors, explains: |
| “The UK economy lost its summer exuberance in the final months of 2018, and there are signs of further chill winds ahead. | “The UK economy lost its summer exuberance in the final months of 2018, and there are signs of further chill winds ahead. |
| “The ongoing uncertainty around what happens after 29th March is the prime suspect behind sapped economic activity. There is currently a drag on growth as some businesses are forced to hold back on major investments and engage in cautionary stockpiling. | “The ongoing uncertainty around what happens after 29th March is the prime suspect behind sapped economic activity. There is currently a drag on growth as some businesses are forced to hold back on major investments and engage in cautionary stockpiling. |
| “The first half of 2019 will bring further challenges for the UK economy. China’s slowdown and weak growth in Europe are likely to bite at British exporters. At the same time, while consumers have shown resilience so far, many are becoming increasingly cautious with their wallets. | “The first half of 2019 will bring further challenges for the UK economy. China’s slowdown and weak growth in Europe are likely to bite at British exporters. At the same time, while consumers have shown resilience so far, many are becoming increasingly cautious with their wallets. |
| “The clock is ticking, but if a Brexit deal can be agreed, things should start to look sunnier as pent-up demand is released and firms begin investing again.” | “The clock is ticking, but if a Brexit deal can be agreed, things should start to look sunnier as pent-up demand is released and firms begin investing again.” |
| James Smith, economist at ING, is also disappointed by the drop in business investment: | James Smith, economist at ING, is also disappointed by the drop in business investment: |
| It was back to reality for the UK economy during the fourth quarter, according to the latest GDP figures. Growth slowed to just 0.2%, a stark contrast to the 0.6% reading seen during the third quarter when warmer weather gave the economy a temporary reprieve. | It was back to reality for the UK economy during the fourth quarter, according to the latest GDP figures. Growth slowed to just 0.2%, a stark contrast to the 0.6% reading seen during the third quarter when warmer weather gave the economy a temporary reprieve. |
| But the most alarming feature of these numbers is that fact that business investment fell for the fourth quarter in a row, as Brexit uncertainty continued to bite. | But the most alarming feature of these numbers is that fact that business investment fell for the fourth quarter in a row, as Brexit uncertainty continued to bite. |
| This is from Morten Lund, analyst at Nordea Markets: | This is from Morten Lund, analyst at Nordea Markets: |
| 🇬🇧#Brexit dragging on growthUK Q4 GDP at 0.2% q/q (Nordea 0.2%, consensus/BoE 0.3%). 4th consecutive quarter (and longest run since the financial crisis) with Business Investments declining. This is clearly related to Brexit uncertainty. Expect another bad reading in Q1! pic.twitter.com/GgSzon6L3j | 🇬🇧#Brexit dragging on growthUK Q4 GDP at 0.2% q/q (Nordea 0.2%, consensus/BoE 0.3%). 4th consecutive quarter (and longest run since the financial crisis) with Business Investments declining. This is clearly related to Brexit uncertainty. Expect another bad reading in Q1! pic.twitter.com/GgSzon6L3j |
| In another blow, today’s GDP report shows that UK manufacturing has now contracted for six months in a row. | In another blow, today’s GDP report shows that UK manufacturing has now contracted for six months in a row. |
| That means it’s in recession (defined as two consecutive quarters of negative growth) for the first time since the financial crisis. | That means it’s in recession (defined as two consecutive quarters of negative growth) for the first time since the financial crisis. |
| The ONS says: | The ONS says: |
| Production fell by 0.5% in the month of December 2018, also driven by manufacturing, which contracted by 0.7%. | Production fell by 0.5% in the month of December 2018, also driven by manufacturing, which contracted by 0.7%. |
| This is the sixth consecutive monthly fall for manufacturing, which last occurred between September 2008 and February 2009. | This is the sixth consecutive monthly fall for manufacturing, which last occurred between September 2008 and February 2009. |
| Economist Andrew Sentance blames Brexit uncertainty for the slowdown: | Economist Andrew Sentance blames Brexit uncertainty for the slowdown: |
| Brexit uncertainty cl;early hitting UK GDP and investment. GDP growth in 2018 1.4pc, weakest since the financial crisis. Business investment has contracted in past 4 quarters and now nearly 4pc down on a year ago. UK already counting the cost and we have not left the EU yet! | Brexit uncertainty cl;early hitting UK GDP and investment. GDP growth in 2018 1.4pc, weakest since the financial crisis. Business investment has contracted in past 4 quarters and now nearly 4pc down on a year ago. UK already counting the cost and we have not left the EU yet! |
| Here’s a neat summary of the key points in the GDP report, via Bloomberg: | Here’s a neat summary of the key points in the GDP report, via Bloomberg: |
| Consumer spending growth stayed at 0.4% in the fourth quarter but business investment slumped 1.4%, the most since the start of 2016. Services, the largest part of economy, slowed to 0.4% growth. | Consumer spending growth stayed at 0.4% in the fourth quarter but business investment slumped 1.4%, the most since the start of 2016. Services, the largest part of economy, slowed to 0.4% growth. |
| In December, all the main sectors of the economy shrank, with manufacturing falling for a sixth consecutive month, the longest run of declines since the financial crisis. The fall in overall GDP was the largest since March 2016. | In December, all the main sectors of the economy shrank, with manufacturing falling for a sixth consecutive month, the longest run of declines since the financial crisis. The fall in overall GDP was the largest since March 2016. |
| The trade deficit narrowed to £12.1bn in value terms in December. | The trade deficit narrowed to £12.1bn in value terms in December. |
| Growth in 2018 slowed to 1.4% | Growth in 2018 slowed to 1.4% |
| GDP rose 1.3% in the fourth quarter from a year earlier, the weakest since the second quarter of 2012. | GDP rose 1.3% in the fourth quarter from a year earlier, the weakest since the second quarter of 2012. |
| Britain buckled under the strain of #Brexit uncertainty in 4Q. GDP increased a smaller-than-forecast 0.2 percent, compared with 0.6 percent in 3Q. December alone saw the economy shrink 0.4 percent, the most since before the 2016 vote to leave the EU. https://t.co/K9cdaNdCwa | Britain buckled under the strain of #Brexit uncertainty in 4Q. GDP increased a smaller-than-forecast 0.2 percent, compared with 0.6 percent in 3Q. December alone saw the economy shrink 0.4 percent, the most since before the 2016 vote to leave the EU. https://t.co/K9cdaNdCwa |
| The annual growth figures also paint a worrying picture. | The annual growth figures also paint a worrying picture. |
| The UK economy only expanded by 1.4% in 2018, the weakest performance since 2012. | The UK economy only expanded by 1.4% in 2018, the weakest performance since 2012. |
| UK carmakers and steel producers had a particularly bad quarter, says Rob Kent-Smith, head of GDP at the ONS: | UK carmakers and steel producers had a particularly bad quarter, says Rob Kent-Smith, head of GDP at the ONS: |
| “GDP slowed in the last three months of the year with the manufacturing of cars and steel products seeing steep falls and construction also declining. However, services continued to grow with the health sector, management consultants and IT all doing well. | “GDP slowed in the last three months of the year with the manufacturing of cars and steel products seeing steep falls and construction also declining. However, services continued to grow with the health sector, management consultants and IT all doing well. |
| “Declines were seen across the economy in December, but single month data can be volatile meaning quarterly figures often give a better indication of the health of the economy. | “Declines were seen across the economy in December, but single month data can be volatile meaning quarterly figures often give a better indication of the health of the economy. |
| “The UK’s trade deficit widened slightly in the last three months of the year, while business investment again declined, now for the fourth quarter in a row.” | “The UK’s trade deficit widened slightly in the last three months of the year, while business investment again declined, now for the fourth quarter in a row.” |
| Britain’s services sector provided the bulk of the growth in the final three months of 2018. | Britain’s services sector provided the bulk of the growth in the final three months of 2018. |
| Services output expanded by 0.4% in October-December, while manufacturing output shrank by 0.9% in the quarter. | Services output expanded by 0.4% in October-December, while manufacturing output shrank by 0.9% in the quarter. |
| And in December alone, services, manufacturing and construction ALL contracted, as this chart shows: | And in December alone, services, manufacturing and construction ALL contracted, as this chart shows: |
| In another blow, the UK economy actually shrank in December. | In another blow, the UK economy actually shrank in December. |
| The Office for National Statistics reports that GDP shrank by 0.4% in the final month of 2018. That’s worse than expected -- economists had predicted that the economy might have flatlined during the month. | The Office for National Statistics reports that GDP shrank by 0.4% in the final month of 2018. That’s worse than expected -- economists had predicted that the economy might have flatlined during the month. |
| This will intensify fears that Britain’s economy is suffering from Brexit anxiety, the trade war between the US and China, and weakness in the eurozone (where Italy has fallen into recession) and beyond. | This will intensify fears that Britain’s economy is suffering from Brexit anxiety, the trade war between the US and China, and weakness in the eurozone (where Italy has fallen into recession) and beyond. |