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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 |
| (about 1 hour later) | |
| Our economics editor Larry Elliott sees more bumps ahead for the UK economy: | |
| In the meantime, the economy is going to struggle and growth could be even weaker in the first three months of 2019 than it was at the tail end of 2018 if consumers really go into their shells. A recession – two consecutive quarters of negative output – will probably be avoided with the help of higher government spending but it could be a close run thing. | |
| Brexit is not the only factor holding back the economy. Global growth is slowing and there are some other EU countries, Germany and Italy for example, that did even worse in the second half of 2018. Pressure to avoid a no-deal Brexit will not be coming just from policy makers in the UK. | |
| More here: | |
| Britain's Brexit slump will be quietly cheered in some quarters | Larry Elliott | |
| With British industry in recession, firms should have activated their Brexit contingency plans by now, argues Nicole Livesey, manufacturing partner at Pinsent Masons. | |
| She explains: | |
| Many will need to alter logistics and shipping routes, invest in warehousing of stock and adjust production schedules to protect their business. We may also see operations being relocated overseas as well as reduced worker headcount in the coming months. | |
| “The manufacturing sector has warned Government for some time that a sharp slowdown would take hold in the wake of Brexit. Given we are just 46 days away from 29th March businesses need to take action to safeguard against the impact of a no-deal.” | |
| Here’s a timely reminder that the eurozone is also slowing: | |
| "From Boom to Gloom" Morgan Stanley slashes euro zone 2019 GDP forecast to 1.0% from 1.6%. Also cuts inflation, bond yield & euro forecasts, and pushes out ECB's first rate hike to June 2020. pic.twitter.com/ocfBnZHl9r | |
| The latest UK trade figures have brought little cheer. Britain’s trade gap with the rest of the world has widened in the last quarter as it bought more goods - including cars - from the EU. | |
| Imports from EU countries increased by £1.7bn in October-December, while exports increased by just £0.04bn. | |
| The rise in imports was due mainly to a £1.5bn increase in imports of machinery and transport equipment, of which £1bn was cars. | |
| Here’s the key points from the ONS: | |
| The total trade deficit (goods and services) widened £0.9 billion to £10.4 billion in the three months to December 2018, due mainly to a £1.5 billion rise in goods imports. | |
| Rising imports of cars, material manufactures and chemicals were the main contributors to the rise in goods imports in the three months to December 2018; this was offset in part by falling imports of unspecified goods (including non-monetary gold) and fuels. | |
| The trade in goods deficit widened £1.6 billion with EU countries and narrowed £0.2 billion with non-EU countries in the three months to December 2018. | |
| Excluding erratic commodities, the total trade deficit widened £3.8 billion to £12.9 billion in the three months to December 2018. | |
| Removing the effect of inflation, the total trade deficit widened £0.6 billion to £7.1 billion in the three months to December 2018. | |
| The total trade deficit widened £8.4 billion to £32.3 billion between 2017 and 2018, due mainly to a £7.2 billion increase in services imports. | |
| Sky News have broadcast an interview with Philip Hammond, in which the chancellor warns that the failure to agree a Brexit deal is hurting the economy. | Sky News have broadcast an interview with Philip Hammond, in which the chancellor warns that the failure to agree a Brexit deal is hurting the economy. |
| Asked about the slowdown in growth to just 0.2% in the last quarter, Hammond replies: | Asked about the slowdown in growth to just 0.2% in the last quarter, Hammond replies: |
| It’s a solid performance from the economy when you took at what’s happening globally and in other competitor countries. | It’s a solid performance from the economy when you took at what’s happening globally and in other competitor countries. |
| But of course there is no doubt that our economy is being overshadowed by the uncertainty created by the Brexit process. | But of course there is no doubt that our economy is being overshadowed by the uncertainty created by the Brexit process. |
| The soon we can resolve that the better, and the quicker we can get back to more robust growth in the future. | The soon we can resolve that the better, and the quicker we can get back to more robust growth in the future. |
| Chancellor @PhilipHammondUK tells me: “There is no doubt that our economy is being overshadowed by the uncertainty from Brexit.. this has gone on longer than we wanted” | Chancellor @PhilipHammondUK tells me: “There is no doubt that our economy is being overshadowed by the uncertainty from Brexit.. this has gone on longer than we wanted” |
| Hammond (a former Remain supporter who now favours a softer Brexit) also admitted that he’s expected an agreement to be signed by now. | Hammond (a former Remain supporter who now favours a softer Brexit) also admitted that he’s expected an agreement to be signed by now. |
| I’m afraid this has gone on longer than we would have liked. | I’m afraid this has gone on longer than we would have liked. |
| We would have liked to have been able to bank this at the back end of last year, but I’m confident that we will get it done, and that’s the important thing that business needs to here. | We would have liked to have been able to bank this at the back end of last year, but I’m confident that we will get it done, and that’s the important thing that business needs to here. |
| Professor Costas Milas of Liverpool University says today’s UK GDP figures are bad, and also worse than the Bank of England predicted in its Inflation Report last week (when it also estimated a one-in-four chance of a recession in 2019). | Professor Costas Milas of Liverpool University says today’s UK GDP figures are bad, and also worse than the Bank of England predicted in its Inflation Report last week (when it also estimated a one-in-four chance of a recession in 2019). |
| He tells us: | He tells us: |
| Indeed, the Bank’s forecasts assumed annual growth of 1.36% as the most likely outcome for 2018 Q4. Today’s ONS data readings suggest even lower annual growth at 1.3% for 2018 Q4 and a GDP contraction of 0.4% in December. | Indeed, the Bank’s forecasts assumed annual growth of 1.36% as the most likely outcome for 2018 Q4. Today’s ONS data readings suggest even lower annual growth at 1.3% for 2018 Q4 and a GDP contraction of 0.4% in December. |
| Quite worryingly, the “carry over” effects of the above readings indicate that the risk of recession has risen... Will politicians take (any) notice? | Quite worryingly, the “carry over” effects of the above readings indicate that the risk of recession has risen... Will politicians take (any) notice? |
| UK trade secretary, Dr Liam Fox, has blamed China’s cooling economy for Britain’s weak growth, rather than Brexit. | UK trade secretary, Dr Liam Fox, has blamed China’s cooling economy for Britain’s weak growth, rather than Brexit. |
| Speaking in Bern this morning, Fox said: | Speaking in Bern this morning, Fox said: |
| “Clearly there are those who believe that Brexit is the only economic factor applying to the UK economy. | “Clearly there are those who believe that Brexit is the only economic factor applying to the UK economy. |
| I think you’ll find that the predicted slowdown in a number of European economies is not disconnected from the slowdown, for example, in China”. | I think you’ll find that the predicted slowdown in a number of European economies is not disconnected from the slowdown, for example, in China”. |
| He saw speaking after signing a trade continuity agreement to guarantee future trading terms between the UK and Switzerland after Brexit. | He saw speaking after signing a trade continuity agreement to guarantee future trading terms between the UK and Switzerland after Brexit. |
| Here’s another neat chart from Rupert, putting the UK slowdown in context: | 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 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. | UK service companies, builders and manufacturers all had a relatively tough 2018, with growth the weakest in at least five years. |
| The ONS says: | The ONS says: |
| Headline annual gross domestic product (GDP) growth was 1.4% in 2018, the lowest it has been in six years. | 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 | 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. | 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. | 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: | 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 | 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 | 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: | 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. | “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.” | “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 |