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Financial News: UK Economy Stagnates In Q4

UK Economy Stagnates In Q4

02/11/2020 - 07:02:00 (RTTNews)

(RTTNews) - The UK economy stalled in the fourth quarter as uncertainty around Brexit and the general election weighed on investment and spending, first estimates from the Office for National Statistics showed Tuesday.

Gross domestic product remained unchanged from the previous three months, as expected, after expanding by a revised 0.5 percent in the third quarter. "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," ONS Head of GDP Rob Kent-Smith said.

The underlying trade deficit widened, as exports of services fell, partially offset by a fall in goods imports, Kent-Smith noted.

Although the economy failed to grow in the fourth quarter, this is 'old news' for markets, James Smith, an ING economist, said.

Optimism has increased among businesses, and while this may not fully translate into faster growth, it would take a more material deterioration in UK activity to convince the Bank of England to cut interest rates, he noted.

On a yearly basis, economic growth slowed marginally to 1.1 percent from 1.2 percent a quarter ago.

In the fourth quarter, the dominant service sector grew 0.1 percent, which was the weakest quarterly growth since the second quarter of 2016.

Industrial production dropped 0.8 percent led by the weakness in manufacturing. Manufacturing output was down 1.1 percent driven by a decrease in transport equipment output with several factories going ahead with planned shutdowns in November.

Meanwhile, construction output was up 0.5 percent underpinned by increases in private commercial, public new housing and non-housing repair and maintenance.

The expenditure-side breakdown showed that private consumption, government consumption and net trade contributed positively to growth, while gross capital formation subtracted from growth in the fourth quarter.

Household spending grew only 0.1 percent, while government spending climbed 2.1 percent, the most since the first quarter of 2012.

Gross fixed capital formation declined 1.6 percent. Business investment dropped 1 percent, in contrast to a 0.2 percent rise in the third quarter.

In the fourth quarter, the visible trade deficit narrowed to GBP 15.069 billion from GBP 29.480 billion in the previous three months.

Exports grew 10.1 percent sequentially after a 10.2 percent rise in the September quarter. Imports decreased 4 percent after a 2.7 percent increase in the previous quarter.

In the whole year of 2019, the economy expanded at a slightly faster pace of 1.4 percent after rising 1.3 percent in 2018.

Breaking this down by sector, services grew 1.8 percent in 2019 and construction advanced 2.5 percent, while production fell 1.3 percent. In December, the economy recovered driven by growth in services, the ONS said. Monthly GDP rose 0.3 percent, offsetting a 0.3 percent fall in November.

Services output increased 0.3 percent, almost entirely reversing a 0.4 percent drop in November. Construction advanced 0.4 percent.

Industrial production gained 0.1 percent, after a 1.1 percent fall in November. Likewise, manufacturing advanced 0.3 percent after falling 1.6 percent a month ago.

On a yearly basis, industrial production decreased 1.8 percent, after falling 2.5 percent. Manufacturing eased 2.5 percent versus a 3.3 percent drop in November.

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