UK economy limps to end of 2019 amid Brexit uncertainty and global downturn

Brexit uncertainty ensured 2019 was one other troublesome 12 months for the financial system, because the UK flirted with recession after two EU withdrawal deadline extensions stored corporations and households in limbo.

With a deepening downturn within the wider international financial system compounding home-grown points, exercise within the UK limped to the year-end end line amid indicators that progress was stagnating throughout the main sectors.

Whereas Britain averted a technical recession within the third quarter after a contraction the earlier three months, there was little cheer as uncertainty over the Brexit end result after which the December basic election left the financial system in stop-start mode all 12 months.

Companies continued to freeze their spending plans, producers have been buffeted by stockpiling efforts forward of the 31 March and 31 October deadlines and builders suffered amid a slowing housing market because of wavering purchaser confidence.

The 12 months started with a bang, as stockpiling earlier than the unique spring Brexit cut-off pushed progress as much as 0.6 per cent within the first three months.

This was double the out-turn for the top of 2018, although the enhance proved short-lived because the manufacturing fillip unwound over the following three months to see the financial system contract for the primary time since 2012.

Exercise shrank by 0.2 per cent between April and June because the manufacturing and development sectors each slumped.

Companies that spent the primary three months of the 12 months stockpiling as a substitute moved to make use of up their shops earlier than increase new reserves.

Indicators that the financial system continued to splutter over the summer time sparked worries the UK may enter a recession – outlined by two consecutive quarters of financial decline.

These fears have been allayed when the financial system returned to progress within the third quarter with 0.Three per cent enlargement – however the uncertainty ramped up in the direction of the top of the 12 months after Prime Minister Boris Johnson known as a snap election.

Added to all this was the unstable state of affairs between the US and China as their commerce conflict escalated over the 12 months, which has compounded the worldwide progress slowdown, with knock-on results on the UK.

Official figures confirmed Britain’s progress flatlined in October and sector surveys since then have painted an equally gloomy image.

The Financial institution of England lower its outlook for fourth-quarter progress to a paltry 0.1 per cent because the prospects for the financial system started to look decidedly downbeat and left the door firmly open to an rate of interest lower in its final resolution of 2019.

Whereas charges have been held at 0.75 per cent all 12 months, two of the Financial institution’s policymakers have voted since November for a lower to 0.5 per cent.

The strong Conservative Occasion win is seen as doubtlessly providing a lift within the type of authorities spending, whereas additionally lifting the clouds of political uncertainty.

However by far the largest issue affecting progress is Brexit and commerce deal prospects, which stay removed from sure as Mr Johnson has signalled he’ll search to cross laws that might trigger a cliff-edge Brexit on the finish of 2020.

George Brown at Investec stated: “A no-deal Brexit may nonetheless present itself as quickly as the top of subsequent 12 months, whereas a re-escalation within the US-China commerce dispute can’t be dominated out.”

Regardless of this warning, Investec nonetheless believes charges will probably be lifted to 1 per cent in mid-2021.

Howard Archer, chief UK financial adviser to the EY Merchandise Membership, stated the outlook for the financial system in 2020 will as soon as once more see Brexit because the deciding issue and the Financial institution could have to take motion if progress stays within the doldrums.

And with inflation remaining nicely beneath the Financial institution’s 2 per cent goal – at 1.5 per cent in November – there’s room to take action if vital.

Mr Archer stated: “If the UK financial system fails to indicate clear indicators of choosing up within the early months of 2020, stress will clearly mount on the Financial institution of England to trim rates of interest to supply assist.

“Strain for decrease rates of interest may additionally mount if the financial system continues to be hampered by issues over the UK’s longer-term relationship with the EU and what is going to occur on the finish of 2020 when the transition association will probably be on account of finish.”


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