Brexit productivity crisis UK economy
Marijana No Comments

Brexit stockpiling gave a 1.8 per cent boost to the UK economy in the first quarter of 2019 compared to the same quarter last year, figures confirmed today.

UK GDP rose 1.8 per cent in January to March compared to its corresponding 2018 quarter.

That figure beat the 1.4 per cent quarterly growth between October and December last year, the Office for National Statistics (ONS) said.

The economy grew 0.5 per cent on a quarterly basis, unchanged from the ONS’s initial estimate.

The services sector offered the biggest economic boost, followed by production, thanks to a 1.9 per cent rise in UK manufacturing output.

Brexit stockpiling underpins UK economy

Brexit stockpiling underlined the growth in UK manufacturing ahead of the UK’s potential no-deal Brexit departure on 29 March, the original deadline for leaving the EU.

In fact, stockpiling added 0.9 percentage points to the first quarter growth rate of 0.5 per cent.

Howard Archer, chief economic adviser to the EY Item Club, said: “There was a major boost to first-quarter GDP growth from stockpiling as businesses and, very possibly to a limited extent, consumers looked to protect their supplies in case a disruptive no-deal Brexit occurred at the end of March.

“Additionally, unseasonably warm weather gave a boost to consumer spending in the first quarter.”

Business investment finally grows

Business investment rose 0.4 per cent quarter-on-quarter after dropping in every quarter last year.

Archer called it “welcome news” but added that he was “sceptical” that this was the start of an upturn in spending.

The economist pointed to “ongoing major Brexit, UK domestic political and global economic uncertainties”.

Business investment was still 1.5 per cent lower than it was in the same quarter a year ago.

No-deal Brexit could weaken GDP growth

Tory leadership contest frontrunner Boris Johnson is set to take the UK out of the EU in a no-deal Brexit on 31 October if a deal cannot be reached.

And in the week that Bank of England governor Mark Carney warned market fears of a no-deal Brexit have risen, economists warned of the possible fallout for the UK.

Archer said: “Under a no deal scenario, we suspect that GDP growth is likely to come in at just 0.3 per cent in 2020, with the economy likely suffering stagnation or even mild recession over the first half. Growth is seen picking up to 1.2 per cent in 2021.”

Meanwhile a delay to Brexit would extend uncertainty, sending GDP growth in 2020 to around 1.3 per cent, he predicted.

“Much would depend on how long the delay to the UK’s departure was and what final form Brexit took,” Archer said.

UK inflation rise could cause recession

However, economists and experts warned that the growth could turn into a recession if UK inflation rises.

Nancy Curtin, chief investment officer of Close Brothers Asset Management, said: “With investors already on edge over a global slowdown, they remain eagle-eyed for any further indication of weakness at home. If inflation starts to slide, concerns will increase that we are heading towards a deflationary recession.

“With the no-deal Brexit cause rejuvenated, political uncertainty continues to wrack the minds of investors, and businesses are refraining from deploying capital. The UK economy will likely remain sluggish until the Brexit dilemma is finally resolved.”

By Joe Curtis

Source: City AM

Leave a Reply

Your email address will not be published. Required fields are marked *