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The UK economy flat-lined in the final quarter of 2019, data has shown, as political uncertainty driven by Brexit and the December General Election weighed on activity.

Britain’s services sector – which makes up about 80 per cent of the economy – eked out growth of 0.1 per cent, while manufacturing production slumped 1.1 per cent quarter on quarter, the Office for National Statistics (ONS) said.

The ONS said the UK economy grew 1.4 per cent in 2019 as a whole, bettering 2018’s growth of 1.3 per cent. Over the last year, services grew 1.8 per cent but production fell 1.3 per cent in a tough year for UK manufacturers amid repeatedly delayed Brexit deadlines.

“The underlying picture for production was one of weakening throughout 2019, with nine months of the year showing negative rolling three-month growths,” the ONS said.

However, analysts are looking towards January data to give a more accurate sense of where the economy is headed, given that business sentiment and survey indicators have picked up markedly since Boris Johnson’s landslide December election win.

Firms are grateful for at least some clarity over Brexit, which officially happened at the end of last month. Expectations of an economic pick-up led the Bank of England to hold interest rates at 0.75 per cent at its last meeting.

In December, UK GDP grew by more than expected, registering a 0.3 per cent month on month expansion. This beat expectations of 0.2 per cent growth and the 0.3 per cent contraction seen in November.

The pound climbed after the data was released to stand 0.4 per cent higher against the dollar by 9.45am at $1.294.

Ruth Gregory, senior UK economist at consultancy Capital Economics, said: “While the first estimate of fourth-quarter GDP showed that the economy stagnated at the end of last year, the fourth quarter will probably prove to be the low point.”

“The expenditure breakdown painted a pretty downbeat picture, showing that business investment and net trade drove the drop in GDP, subtracting 0.1 percentage points and 0.3 percentage points respectively.”

Uncertainty remains

The weak UK GDP reading came ahead of chancellor Sajid Javid’s 11 March Budget, which will set the tone for the new Conservative administration which has pledged to boost spending.

Tej Parikh, chief economist at the Institute of Directors, said: “The UK economy ended 2019 in a funk, and despite a recent rise in optimism, businesses will be looking for a significant boost from the chancellor next month.”

Britain has entered the next phase of Brexit negotiations, and has until the end of the year to reach a “deep free-trade agreement” with the European Union. Many businesses are concerned that the tight deadline could result in the UK falling into an effective no-deal Brexit.

“This makes the Budget a crucial moment to get the economy moving,” Parikh said. “The chancellor must clear the way for entrepreneurs to create jobs and drive up productivity, by unleashing investment in start-ups, slashing business rates, and revamping our skills system.”

Other uncertainties also linger over the economy. In a worrying sign for policymakers, UK household spending, which drove growth in 2019 as unemployment plumbed record depths, slumped to a four-year low.

Chris Towner, director at risk adviser Chatham Financial, said: “The question now for the first quarter of 2020 is whether we are going to witness a bounce in activity as a reaction to the healthy majority for the more business-friendly Conservative party. Early shoots of a bounce are starting to appear.”

By Harry Robertson

Source: City AM

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