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UK economy at weakest since 2012, as Brexit, global worries bite

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02/11/2019 | 01:46pm EST
FILE PHOTO: Buildings in the City of London are seen behind Waterloo Bridge in London

LONDON (Reuters) - Britain's economy slowed sharply in late 2018, pushing annual growth to a six-year low as worries about Brexit hammered business investment and a weakening global economy weighed on trade, data showed on Monday.

Quarterly growth fell to 0.2 percent between October and December from 0.6 percent in the previous quarter, in line with forecasts in a Reuters poll, while output in December alone dropped by the most since 2016.

"Brexit uncertainty, a slowing global economy and the persistent financial squeeze on consumers and businesses (are) increasingly having a suffocating effect on economic activity," British Chambers of Commerce economist Suren Thiru said.

Sterling fell a third of a cent to below $1.29 after the data, before recovering.

Businesses are increasingly concerned about the lack of a plan for March 29, when Britain is due to leave the European Union.

Prime Minister Theresa May has faced strong parliamentary opposition to an agreement she reached with Brussels to avoid reimposing checks on goods exported from Britain.

For 2018 as a whole, UK growth dropped to its lowest since 2012 at 1.4 percent, down from 1.8 percent in 2017 and weaker than the euro zone, which has outpaced Britain since 2016.

Last week the Bank of England chopped its forecast for growth this year by 0.5 percentage points to 1.2 percent, which would be the weakest year since the 2009 recession.

Other major economies around the world also slowed in late 2018, due in part to trade tensions between the United States and China.

Monday's data showed a net trade deficit lopped more than 0.1 percentage points from Britain's fourth-quarter growth rate. Falling business investment did similar damage.

Japanese carmaker Nissan cancelled plans to build a new car model in Britain last week, saying Brexit uncertainties made it harder to plan for the future.

"GDP slowed in the last three months of the year with the manufacturing of cars and steel products seeing steep falls and construction also declining," Office for National Statistics statistician Rob Kent-Smith said.

In December alone, the economy contracted by 0.4 percent, the biggest fall since March 2016.

Chancellor Philip Hammond said the data showed the economy remained "fundamentally strong" and that Britain's Office for Budget Responsibility did not foresee a recession.

"The economy has come in ahead of the OBR's forecast for 2018, and that is in the context of a weakening world economy and increasing concerns about trade tensions around the world," he told the BBC.

Business investment dropped 3.7 percent in the fourth quarter compared with a year earlier, the biggest fall since the first three months of 2010, when Britain was emerging from recession. Investment has contracted for four consecutive quarters, the longest run since the third quarter of 2009.

Household spending - which offered an unexpectedly strong boost to growth in mid-2018 - remained resilient, up 1.9 percent on a year ago, and government spending picked up.

(Editing by Peter Graff and John Stonestreet)

By David Milliken and Andy Bruce

Stocks mentioned in the article
ChangeLast1st jan.
NISSAN MOTOR CO LTD -0.95% 935 End-of-day quote.9.22%
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