United Kingdom: Q4 slump drags down 2018 growth to six-year low
Growth decelerated in the fourth quarter of 2018, according to preliminary data released by the Office for National Statistics (ONS) on 11 February. Quarter-on-quarter growth came in at 0.2% in Q4, down from Q3’s 0.6% and matching FocusEconomics panelists’ expectations. In 2018 as a whole, the economy grew 1.4%, the weakest reading since 2012.
In terms of expenditure, private consumption grew 0.4% qoq in Q4 (Q3: +0.4% quarter-on-quarter), supported by faster real wage growth. However, weak consumer confidence linked to Brexit uncertainty likely held back spending somewhat. Government consumption rose 1.4%, bouncing back from Q3’s 0.3% qoq contraction, while fixed investment was down 0.5% (Q3: +0.6% qoq). The fall in fixed investment was driven by a fourth consecutive quarterly fall in business investment, a sure sign that the lack of clarity over Brexit is affecting firms’ investment decisions.
On the external front, exports rose 0.9% in the fourth quarter, up from Q3’s 0.2% uptick on the back of greater service exports, while imports increased 1.3% (Q3: 0.0% qoq). As a result, the external sector subtracted 0.1 percentage points from growth.
Looking ahead, the evolution of the economy this year hinges on Brexit. While growth in Q1 is likely to be feeble due to crippling uncertainty over the outcome of the process, a deal agreed by the current 29 March departure date would likely unleash pent-up business investment and support private consumption through the rest of the year. Any delay to the departure date, however, would prolong uncertainty in the near-term and depress demand, while a no-deal Brexit would likely bring the economy to a near standstill in 2019.
On the implications for monetary policy, James Smith, an economist at ING, commented: “With a growing risk that we may not know whether ‘no deal’ has been averted until much closer to the 29 March deadline, the UK economy faces a challenging few weeks. The chances of a rate hike from the Bank of England this year are receding.”