UK posts slowest growth in six years; economy wilts as Brexit jitters hit business investment

The UK's gross domestic product increased a smaller-than-forecast 0.2 per cent, compared with 0.6 per cent in the third quarter. PHOTO: REUTERS

LONDON (BLOOMBERG) - The UK buckled under the strain of Brexit uncertainty in the fourth quarter.

The UK economy grew at the slowest pace in six years in 2018 with output almost flat in the final quarter, said AFP, citing a report.

Gross domestic product increased a smaller-than-forecast 0.2 per cent, compared with 0.6 per cent in the third quarter. December alone saw the economy shrink by 0.4 per cent, the most since before the 2016 vote to leave the European Union. The pound fell 0.4 per cent to US$1.2897 (S$1.7523) as of 10.36am in London (6.36pm Singapore time).

The slowdown over the quarter came as businesses cut investment for a fourth consecutive quarter, the longest continuous decline since the financial crisis, and the weakening global economy hit trade.

But there was no widespread evidence of stockpiling as the prospect of a no-deal Brexit looms larger, with inventories rising just 1.6 billion pounds in the quarter.

While organisations such as Heathrow airport and Unilever have said they are keeping more on the storeroom shelf to guard against disruptions to supplies brought in from the EU, the Office for National Statistics said a relatively small number of firms reported doing so.

The economy is facing the worst year for growth since 2009, with economists warning of a recession if Britain leaves the EU without a deal to smooth the transition on March 29. The Bank of England sees growth of 0.2 per cent in the first quarter, but the sudden loss of momentum at the end to 2018 suggests the economy could stagnate, as indicated in recent purchasing manager surveys.

With wage pressure building, the central bank might in different circumstances be preparing to raise interest. But officials last week signaled they have no intention of doing so until the "fog of Brexit" has cleared.

The fear gripping business was illustrated this month when Japanese carmaker Nissan scrapped plans to build a new model in Sunderland. Airbus, which makes wings for commercial aircraft in Britain, has also threatened to switch investment elsewhere. Business investment fell 0.9 per cent in 2018.

Brexit is not the only threat facing the economy. Major markets from the Eurozone to China are losing momentum, weakening demand for British exports. Net trade cut 0.12 per cent points from growth in the fourth quarter as the trade deficit hit the highest in more than two years.

OTHER HIGHLIGHTS

Consumer spending growth stayed at 0.4 per cent in the fourth quarter but business investment slumped 1.4 per cent, the most since the start of 2016. Services, the largest part of economy, slowed to 0.4 per cent 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.

The trade deficit narrowed to 12.1 billion pounds in value terms in December.

Growth in 2018 slowed to 1.4 per cent, and the Bank of England sees a further moderation this year to 1.2 per cent.

GDP rose 1.3 per cent in the fourth quarter from a year earlier, the weakest since the second quarter of 2012.

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