Graeme Wearden 

UK GDP: British economy stagnates as Brexit uncertainty hits growth – as it happened

Rolling coverage of the latest economic and financial news, including how well (or badly) Britain’s economy performed in the face of Brexit and the general election
  
  

The UK’s only remaining aluminium smelter, the Liberty British Aluminium factory in Lochaber, Scotland.
The UK’s only remaining aluminium smelter, the Liberty British Aluminium factory in Lochaber, Scotland. Photograph: Sandy Young/PA

Finally, the UK’s FTSE 100 has closed 52 points higher or 0.7% at 7499.

Traders shrugged off today’s GDP report, as the City joined a wider global rally triggered by signs that the coronavirus infection rate may be slowing.

TUI ended 13% higher after reporting record holiday bookings.

America’s stock market hit a fresh record high today, amid general optimism that the coronavirus crisis could be easing.

It’s now dipped back -- and president Trump knows who to blame:

At 1.75%, US interest rates are certainly higher than in the eurozone (o%) and the UK (0.75%), but that’s because America’s economy has been growing faster.

Record low borrowing costs are usually a sign that something’s gone wrong, not right.

And while the dollar has hit a four-month high today, a certain somebody’s trade wars have also been tough on exports (ask a soybean farmer....).

Anyway, Jerome Powell hasn’t been too gloomy today - he told Congress that the US economy is in a good place, and the expansion can clearly continue.

Carney: Growth needs investment boost

Mark Carney also told the House of Lords that more public and corporate investment are needed, to lift growth.

It’s a timely intervention, given today’s weak GDP report and the decision to press on with the high-speed HS2 rail project.

Carney said that the current low interest rate environment made it a good time to borrow to invest.

“This is an environment in which, yes, the right infrastructure, the right corporate investment projects make sense and will be necessary in order to ultimately get us out of this situation.”

Outgoing Bank of England chief Mark Carney is now weighing in too.

Speaking at the House of Lords, Carney says UK interest rates are likely to be relatively low for the foreseeable future (they’re currently just 0.75%, with two policymakers pushing for a cut this month).

Upward adjustments are likely to be “modest”, predicts Carney (who’s leaving next month).

NEF: The UK population still poorer than in 2008

GDP is always a blunt instrument, and the New Economics Foundation fears that today’s growth report doesn’t capture the damage to living standards since the financial crisis.

NEF, a think tank, has calculated that the UK population are still £97 poorer on average compared to the first three months of 2008.

They’ve calculated this by working out the actual inflation experienced by consumers, including VAT changes and import costs.

Here’s what it shows:

Alfie Stirling, Head of Economics at the New Economics Foundation, says:

“The current debate on the economy and Brexit is at risk of missing the wood for the trees – whatever the nature of tomorrow’s trade deals, the far bigger issue is that the economy is failing the majority of people today.

“The current political turmoil has distrust in technocracy and ‘expert’ views at its core. Matters won’t be helped if too much attention is given to where the next recession is going to come from, when the average person has yet to even recover from the last one.”

Another central banker, Federal Reserve Chairman Jerome Powell, has warned politicians that the coronavirus is a key threat to the global economy.

Testifying to Congress, Powell says:

“In particular, we are closely monitoring the emergence of the coronavirus, which could lead to disruptions in China that spill over to the rest of the global economy.”

Powell has also indicated that the Fed will continue its current programme of buying billions of dollars of short-term US bonds until at least April. This is meant to prevent liquidity drying up -- but also appears to be driving asset prices steadily higher.

Here’s our updated news story on the UK GDP figures:

Meanwhile in Strasbourg, the head of the European Central Bank has warned that the eurozone has been slowing for two years!

Christine Lagarde told the European Parliament:

Euro area growth momentum has been slowing down since the start of 2018, largely on account of global uncertainties and weaker international trade.

Moderating growth has also weakened pressure on prices, and inflation remains some distance below our medium-term aim.

This weakness prompted the ECB to launch a new stimulus programme last year. Lagarde warns, though, that central banks can’t do it all alone.

Monetary policy cannot, and should not, be the only game in town....

In other words, politicians need to do more -- a point UK chancellor Sajid Javid may address in the March budget.

GDP: A summary

Time for a recap

Britain’s economy stagnated in the final quarter of 2019, as political uncertainty, Brexit worries, a slowing eurozone and trade tensions all hurt growth.

GDP flatlined in the October-December, the ONS reported this morning.

But while the economy shrank by 0.3% in November, it bounced back with 0.3% growth in December. There may be some green shoots peeking out.

UK GDP

During the quarter, the services sector grew by 0.1% while industry shrank by 0.8% -- extending a decline that began early in 2019. Business investment shrank 1%, as firms were deterred from investing in new offices and machinery.

ONS’s Head of GDP, Rob Kent-Smith, explained:

“There was no growth in the last quarter of 2019 as increases in the services and construction sectors were offset by another poor showing from manufacturing, particularly the motor industry.

The GDP report also showed that the UK economy grew by 1.4% during 2019.

That’s faster than the eurozone, where France’s economy shrank 0.1% during the last quarter. Here are some international comparisons.

The ONS flagged up that Brexit uncertainty had weighed heavily on the manufacturing industry last year -- with some factories closing down in April and November in case of a hard Brexit.

Some manufacturing sub-sectors have been shrinking since the summer.

Economists were encouraged that growth in the third-quarter of 2019 was revised up, but there are also predictions that UK interest rates could be cut soon to spur growth.

Political reaction was predictably mixed. Chancellor Sajid Javid promised bold measures in March’s budget, while the shadow chancellor blamed government failure.

Business groups called for more assistance - including a cut to business rates and some clarity on the UK-EU trade deal (which is likely to include some painful friction)

Javid: Budget will boost growth....

Chancellor Sajid Javid has managed to respond to today’s GDP figures, without actually mentioning the GDP figures!

Impressive, in some ways....

Rather than focusing on the stagnating UK economy, Javid is looking ahead to next month’s budget statement, saying:

“We’ve broken the deadlock and left the EU – now we need to seize this moment to level up and prepare our great nation for long-term success.

“In my Budget, exactly one month from today, I’ll set out how we will move forward, with more ambition and new thinking, and empower our people and businesses so everyone has the opportunity to thrive.”

HS2 gets green light

And over in parliament, Boris Johnson has just confirmed that the HS2 rail project will go ahead.

The PM is arguing that the UK needs increased capacity and faster speeds, despite concerns over the cost of the high speed line from London to Birmingham, and then the north.

This will please the business groups who were calling for more support this morning, but obviously disappoint campaigners and critics of the plan.

But there will be changes, which will affect connections to Manchester and Leeds, and the new terminus at Euston.

Our Politics live blog has all the details:

Meanwhile in the City, shares in holiday firm TUI are now up 11% after reporting record booking levels - thanks to the demise of rival Thomas Cook.

Professor Costas Milas of Liverpool University reckons there are three reasons to suggest that the UK economy will remain on shaky ground.

First, the carry over effects of today’s no GDP growth will undermine future UK growth.

Second, the rising headwinds of the new Coronavirus will hit, to some extent, global growth and, consequently, undermine further the prospects of future UK growth.

Third, the BoE continues to delay an interest rate cut by being too optimistic. Indeed, the 1.1% annual growth for 2019 Q4 is much lower than its 1.67% forecast two years ago or its 1.72% forecast one year ago...

So there’s a case for UK interest rates to be cut, as soon as next month, he adds:

As Liverpool colleagues and I have shown, additional monetary stimulus can mitigate the impact of zero UK growth and the uncertain global environment. In other words, I think it is quite likely that the Bank of England will intervene by cutting its policy rate as early as March the 26th when its next interest rate decision is scheduled.

Analysis: Don't expect boom-boom Britain

Today’s growth report isn’t as bad as some economists feared, points out our economics editor Larry Elliott.

But while things may improve in 2020, there’s little hope of the UK economy racing ahead.

He writes that the situation is finely balanced:

Surveys have suggested that some of the [business] investment that had been on hold has now been sanctioned. The “phase one” trade deal agreed between Washington and Beijing has removed the threat of intensifying protectionism.

Wages are rising faster than prices, which should support consumer spending. And the UK chancellor, Sajid Javid, is poised to deliver an expansionary budget next month.

It is not all good news. The agreement between China and the US amounts to a truce, not a permanent peace. Businesses will remain cautious about investment all the time there is a risk that the UK and the EU will fail to agree a trade deal. The impact of coronavirus on the global economy is growing.

On balance, the positive should outweigh the negative – at least for now. Growth will rebound in the first quarter and looks likely to be faster in 2020 than in 2019. But boom-boom Britain it won’t be.

John Springford of the Centre for European Reform predicts a growth-friendly budget next month:

Here’s CBI deputy director Josh Hardie on today’s GDP report:

Ruth Gregory of Capital Economics says today’s GDP figures were not quite as bad, and may show the UK outperformed the eurozone last year.

The stagnation in GDP in the fourth quarter beat our forecast of a 0.1% q/q fall.

Encouragingly, overall household consumption managed to eek out a small rise of 0.1% q/q, suggesting that growth in spending off the high street compensated for the 0.9% quarterly fall in retail sales. Meanwhile, Q3’s quarterly GDP estimate was revised up from 0.4% to 0.5% q/q.

As a result, GDP grew by 1.4% in 2019. That beat 2018’s 1.3% increase and the likely 1.2% gain in the euro-zone.

Here’s a chart showing how UK manufacturing has fared in the last six months.

As you can see, sub-sectors such as machinery, pharmaceuticals and chemicals contracted in both Q3 and Q4.

But car production was volatile - surging in the summer because factory closures had been brought forward to April (due to the Brexit deadline), then stumbling in the autumn (as the second deadline loomed).

Business groups call for more help

Tej Parikh, chief economist at the Institute of Directors, says the UK economy ended 2019 in “a funk”, with stagnation in Q4.

It needs some assistance from Chancellor Sajid Javid in March’s budget, he says:

It’s likely that political uncertainty and unwinding stockpiles caused the economy to flag at the end of last year. However, firms entered 2020 with more of a spring in their step. Confidence has shot up, while hiring plans and investment intentions have also risen a notch, but the post-election bounce may tail off.

“Uncertainty from the next stage of Brexit negotiations will increasingly play on the minds of business leaders. Meanwhile, ongoing hiccups in global growth, including the fallout from Coronavirus, could eat into the economy if global financial markets and trade slow.

“This makes the Budget a crucial moment to get the economy moving. 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.”

Suren Thiru, Head of Economics at the British Chambers of Commerce, points to the poor manufacturing figures:

“The UK economy lost momentum in the final quarter of 2019 due to weaker figures for industrial production.

“UK manufacturing remains a weak point for the UK economy with sluggish global demand, tightening cashflow and disrupted supply chains dragging on activity in the sector.

“Despite breaking the Brexit deadlock in Westminster, a faltering global economy and a challenging domestic business environment could limit the UK’s growth prospects - particularly if the lack of clarity over post-transition trading arrangements persists.

Jack Leslie, Economist at the Resolution Foundation, is disappointed that UK GDP in Q4 2019 was only 1.1% higher than Q4 2018 (according to the ONS today).

“The UK economy ended the 2010s on a low, with the joint weakest annual economic growth of the decade. This slowdown is widespread too – manufacturing is in recession and the services sector grew at its slowest rate since mid-2016.

Some international comparisons

The UK economy actually did better than some rivals, despite stagnating in the last quarter.

We don’t have all the GDP reports for Q4 yet, but as things stand we know that America and Spain did OK while France and Italy shrank. China was the standout performer, even though annual growth dropped to a 30-year low.

  • China: +1.5% quarter-on-quarter growth in October-December
  • US: +0.5%
  • Spain: +0.5%
  • Eurozone: +0.1%
  • UK: zero growth
  • France: GDP shrank by 0.1%
  • Italy: GDP shrank by 0.3%

On an annual basis, the UK is mid-table too:

Updated

Full story: UK economy stalled in the last quarter

The British economy failed to grow in the final three months of last year, as political uncertainty took its toll on businesses, writes my colleague Richard Partington:

The Office for National Statistics said that growth in gross domestic product (GDP) flatlined between October and the end of December, down from 0.5% growth in the third quarter.

The latest snapshot shows the economy returned to its weak trajectory in the run-up to Christmas, with paralysis in Westminster followed by a general election campaign that ended in a large majority for Boris Johnson.

However, there are signs that resolving the impasse over the first stage of Brexit, which resulted in Britain leaving the EU on 31 January, has brought a rebound in business activity since the start of the year. In January service sector companies – the cornerstone of the economy – recorded the strongest upturn in activity since mid-2018, according to a closely-watched survey.

John McDonnell MP, Labour’s Shadow Chancellor, is appalled by the poor performance of UK industry this year.

He says:

“These are damning figures showing an economy punctured by a decade of decline.

“With production tumbling over 2019 at its worst rate since 2012, it is clear that the Tories’ combination of cruel cuts and economic mismanagement has sent the economy into freefall.

“The Tories lack any vision or plan for the economy, and the upcoming Budget risks another decade of disappointment.”

There’s certainly no sign of the once-promised March of the Makers today. Production output in 2019 looks more like a weary stagger....

You can read the fourth-quarter UK GDP report here:

December’s report is online here.

Disappointingly, business investment fell by 1% in the final quarter of 2019.

The ONS blamed “heightened uncertainty” (yes, our old ‘friend’ Brexit again...):

Gross fixed capital formation (GFCF) fell by 1.6% in the fourth quarter of 2019. The fall was driven by declines in investment in information and communication technology (ICT) equipment, dwellings, transport, and intellectual property products, though these were partially offset by an increase in investment in other buildings and structures.

Business investment fell by 1.0% in the final quarter of the year, continuing its recent subdued performance as heightened uncertainty is likely to have weighed on the willingness of firms to invest in capital.

Boris Johnson’s (broken) pledge to leave the EU on 31 October ‘do or die’ hurt UK manufacturing, today’s GDP report shows.

Some car factories paused work in November in case Britain had crashed out of the EU on 31 October without a deal. By the time the delay came, it was too late to change plans.

The ONS says:

Output in the manufacturing sector fell by 1.1% in the most recent quarter, driven by a decrease in the manufacture of transport equipment, with several factories going ahead with planned shutdowns in November

It’s not all doom and gloom.

UK growth in the third quarter of 2019 has been revised up to show 0.5% growth, from 0.4%.

And in the second quarter (hit by Brexit-related factory closures), the economy only shrank by 0.1% not the 0.2% expected.

That doesn’t take away from the disappointing stagnation in Q4, but shows that 2019 was a little better than thought (but still far from sparkling).

Table: How growth picked up in December

At the risk of aping Norman Lamont, there are some small green shoots of recovery peeking out of today’s UK GDP report.

Services, manufacturing and construction did all manage some growth in December. That helped to grow the economy by 0.3%, after a torrid November in which services and manufacturing both shrank.

That could be a sign that confidence picked up after the general election -- something which business surveys have already reported.

Here’s some instant reaction to the UK economy’s failure to grow in the final quarter of 2019, despite a pick-up in December:

ONS: Volatility due to Brexit

Brexit uncertainty is to blame for Britain’s volatile (and mediocre!) growth in 2019.

So says the Office for National Statistics in today’s December growth report (which also gives a picture of the whole year).

The ONS says:

The volatility in 2019 can be seen to some extent in all headline sectors, but most notably in production and construction. However, while construction data can often be volatile, the recent volatility in the production sector has been notable, coinciding with the UK’s two previously planned departure dates from the EU.

Despite this, the underlying picture for production was one of weakening throughout 2019, with nine months of the year showing negative rolling three-month growths.

2019 was grim for UK factories

During 2019, the UK economy grew by 1.4% - up from 1.3% in 2018.

That’s two years of rather weak, sub-trend, growth.

Today’s GDP report also shows that the manufacturing sector had a grim year, shrinking by 1.5%.

Here’s the ONS’s Head of GDP, Rob Kent-Smith, on Britain’s flatlining economy:

“There was no growth in the last quarter of 2019 as increases in the services and construction sectors were offset by another poor showing from manufacturing, particularly the motor industry.

“The underlying trade deficit widened, as exports of services fell, partially offset by a fall in goods imports.”

Britain’s service sector grew by a paltry 0.1% in the final quarter of 2019, today’s GDP report shows.

But manufacturing did badly again -- slumping by 1.1% in October-December. The broader measure of industrial production shrank by 0.8%.

The construction sector grew by 0.5%.

UK GDP RELEASED

Newsflash: The UK economy stagnated in the final quarter of 2019, with no growth at all.

But in December alone it grew by 0.3%, reversing its slump in November, according to the Office for National Statistics.

More to follow....

Just five minutes to go until we learn whether Britain ended 2019 with a bang or a whimper....

City economists reckon UK GDP may have risen 0.2% in December - but that wouldn’t make up for November’s 0.3% slide....

Here’s Paul Donovan of UBS Wealth Management on today’s UK GDP report (due in 35 minutes):

Investment spending is likely to be negative, driven down by the uncertainties caused by US President Trump’s trade taxes and the interminable EU-UK divorce.

Ocado counts cost of warehouse blaze

Online grocer Ocado has today confirmed what you may already have suspected -- a major warehouse fire is rather bad news for profits.

Ocado has reported a £214.5m loss for 2019, rather worse than the £44.4m loss a year earlier.

Although revenues jumped 10%, this was wiped out by the impact of a huge blaze at its warehouse in Andover last year

John Moore, senior investment manager at Brewin Dolphin, says this loss has taken the shine off Ocado’s recent technology deals abroad.

“Ocado has delivered decent revenue growth and a range of new partnerships in the last 12 months, but its loss for the year is well beyond analyst expectations. While the impact of the Andover facility fire will account for some of this, the scale of the loss may have some market watchers concerned.

Looking underneath the cashflow figures the UK has turned positive, but investment in the international business has pushed the scale of cash outflow higher.”

City traders appear to be hoping that central bankers will save the day (again) if the global economy stumbles:

European stocks hit new peak amid coronavirus optimism

Boom! European stock markets have hit a record high in early trading.

The Stoxx 600, which tracks the largest six hundred companies across Europe, has gained 0.6% at the open to a new peak.

In London, the FTSE 100 is up 54 points or 0.7% at 7500. Airline and holiday stocks are leading the way, with TUI surging 11% and easyJet up 3.3%.

Traders appear to be more optimistic that the coronavirus crisis will not cause serious damage to the global economy.

Even though the death toll has now passed 1,000, there are signs that the infection rate may be slowing.

But with the death toll now over 1,000, and predictions that 60% of the world’s population could catch the virus, this relief could be premature....

Overnight, we’ve seen that UK retailers aren’t enjoying this alleged ‘Boris Bounce’.

The latest data from the British Retail Consortium shows that spending only rose modestly in January, and actually shrank over the last three months.

My colleague Larry Elliott explains:

The monthly BRC/KPMG health check of the retail sector found that total sales rose by 0.4% in January but were unchanged once increases in floor space were taken into account.

Over the latest three months – a better guide to the underlying trend because it includes Black Friday bargains in November, the peak Christmas spending weeks in December and the January sales – food and non-food takings were down.

UK GDP: What the experts predict

Canaccord Genuity Wealth Management investment manager Dan Smith believes the UK economy could actually have shrunk over the last quarter [City consensus is for 0% growth]

“Considering December was a month plagued by political uncertainty and retail sales have already shown a more cautious consumer over the period, this figure looks challenging.

While a contraction in activity over the quarter will likely dampen sentiment towards the UK, it may not totally alter the outlook for 2020, as recent data has shown enough green shoots to raise hopes for a Boris bounce.”

Ipek Ozkardeskaya, Senior Analyst at Swissquote Bank, is more sceptical about this bounce given the struggle to agree a UK-EU trade deal....

. Today’s data could confirm an anemic growth in the four the quarter, and a stagnant industrial and manufacturing production in December. The fact that business surveys in January hinted at a bounce in activity posterior to Boris Johnson’s victory may attenuate the impact of soft production and growth data.

But the optimism in surveys is now being eaten up as investors realize that the second - and the most decisive phase of Brexit negotiations will likely continue weighing on businesses. In fact, avoiding an immediate no-deal Brexit didn’t necessarily save the UK from walking out of the EU without a deal at the very end.

Introduction: It's UK GDP Day

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Today we discover how well, or badly, the UK economy fared in the final three months of 2019 in the face of Brexit tensions, a general election, and a slowing European economy.

It may not be a pretty sight. Economists predict that growth fizzled out in the last quarter, with GDP likely to be unchanged compared to Q3 (when the economy grew by 0.4%).

On an annual basis, growth may have slumped to just 0.8% year-on-year — a very weak performance.

We learned last month that the economy shrank by 0.3% in November alone - so it’ll take something special in December to avoid a disappointing end to a troubled year.

2019 was a choppy year for growth. Two Brexit deadlines forced firms and households to stockpile goods, only to then run them down again, while consumer confidence and business investment were both knocked.

Economists reckon that the UK service sector was probably stagnant during Q4, with manufacturing shrinking and construction growing. We’ll find out at 9.30am, along with new trade and industrial production data too.

Also coming up today

Three top central bankers will vie for the limelight.

ECB chief Christine Lagarde is testifying at the European Parliament, Fed chair Jerome Powell is appearing before Congress, and outgoing Bank of England governor Mark Carney is at the House of Lords.

Doubtless we’ll hear about growth prospects, interest rate moves, climate change, and the coronavirus.

The agenda

  • 9.30am GMT: UK GDP for October-December 2019: expected to be flat, after 0.4% growth in July-September
  • 2pm GMT: Christine Lagarde at the European Parliament in Strasbourg
  • 3pm GMT: Jerome Powell at the House Financial Services Panel
  • 3.35pm GMT: Mark Carney at the House of Lords economic committee
 

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