John Hawksworth, chief economist at PwC, believes that stockpiling, and solid consumer demand, have helped Britain’s economy survive the political deadlock over Brexit.
Here’s his take on today’s growth report:
“Despite ongoing uncertainty over Brexit, the UK economy held up relatively well in February, with GDP growth of 0.2% compared to January. Services continued to grow at a moderate pace, while manufacturing output seems to have been boosted to some degree by pre-Brexit stockpiling since January.
The underlying trend over the past three months has been for GDP growth at an annualised rate of just over 1%. This is below trend and well down on the buoyant growth rates seen last summer, but there are no signs that Brexit-related uncertainty has pushed the economy as a whole into recession.
The main reason why the economy has held up is that while business investment has been falling over the past year, consumer spending has fared much better on the back of continued strong jobs growth and a steady pick-up in real earnings growth.
The signs are that, if current uncertainties over Brexit can be resolved in an orderly way, paving the way for a recovery in business investment, then UK growth could pick up later this year and into 2020. On this basis, our main scenario is for UK GDP growth of 1.1% in 2019 and 1.6% in 2020.”
Take note, borrowers. Economist Sam Tombs of City firm Pantheon suspects today’s GDP report increases the chances of a Bank of England interest rate rise during 2019.
Pantheon Macro (@PantheonMacro)
Despite growing in February, Britain’s construction output has shrunk by 0.6% over the last quarter.
Clive Docwra, managing director of construction consulting and design agency McBains, fears the sector will keep struggling this year.
“Given the continuing “will-we, won’t we” saga of when the UK will be leaving the EU, today’s figures buck the trend we were expecting. However, although there was moderate growth in February, the general trend is of slowing growth since mid-2018.
“Indeed, the long term outlook is even gloomier as a weak UK economy, volatile pound and worries over the long term impact of Brexit mean caution from investors is the watchword, as evidenced by a fall in private commercial new work. We expect that will translate into a continued, more serious, contraction for the sector over the coming months.”
Capital Economics UK (@CapEconUK)
Once again the initial estimate of #GDP was stronger than the survey evidence had suggested, providing a reassuring sign that up to February at least, the economy weathered the #Brexit chaos and overseas slowdown well. pic.twitter.com/mJWoKLqFdH
Andy Bruce of Reuters has spotted fresh signs that Britain’s financial services sector is struggling:
Andy Bruce (@BruceReuters)
Hardly controversial to say that finance has struggled since the Brexit vote.
On 3m/3m basis, it’s been 22 months since the sector saw growth pic.twitter.com/HYSWXn1zil
Despite Brexit stockpiling, Britain’s manufacturing sector is still smaller than before the financial crisis, points out Newsnight’s Ben Chu:
Ben Chu (@BenChu_)
Ben Chu (@BenChu_)
John McDonnell MP, the shadow chancellor, isn’t impressed by the UK’s 0.3% growth over the last quarter, saying:
“These weak growth figures are a direct result of this Government’s Brexit bungling and long-running economic mismanagement.
“The Tories lack both competence and vision on the economy, as yesterday’s double downgrade by the IMF confirms.
“Only a Labour Government would will invest to grow, rebuilding the economy for the many not the few.”
Theresa May doesn’t have much firepower as she faces EU leaders in Brussels tonight, to plead for another Brexit extension.
Today’s GDP report, though, may strengthen her hand, argues Professor Costas Milas of Liverpool University.
He tells us:
Stockpiling or not, today’s GDP reading suggests the economy grew at an annual rate of approximately 1.56% on a three-month rolling basis (between December 2018 and February 2019) which is slightly higher than the 1.49% forecast made by the Bank of England for 2019 Q1. The further good news is that ONS has revised upwards growth rates for 2018.
This suggests a ‘carry over’ effect which should tempt the Bank of England revise upwards its 1.2% forecast for 2019 as a whole. Mrs May should make the most of it. Indeed, she can legitimately warn her critics from Brussels: “Back my efforts to secure extra time to sort out the Brexit mess or today’s relatively healthy economic performance will become a thing of the past in case snap elections and/or a disorderly Brexit gets in our way”.
UK GDP Photograph: Professor Costas Milas
The news that Britain’s economy expanded by 0.2% in February has been cautiously welcomed by economists.
Ian Stewart, chief economist at Deloitte, says the UK is showing a steely streak:
“The UK is proving more resilient than expected in the face of a global slowdown and Brexit headwinds. The pace of growth could be choppy, but the UK is likely to grow at about the same pace as the euro area this year.”
Pablo Shah, senior economist at the CEBR thinktank, warns that Brexit could still drag the economy down in 2019.
“Today’s figures provide a glimmer of hope that the UK economy has gained some momentum at the start 2019, despite the effects of a slowing global economy and crippling uncertainty. Cebr forecasts that the UK economy will grow by 1.2% over 2019, assuming that a modified version of the withdrawal agreement is passed in the coming weeks.
However, risks to this forecast are stacked to the downside, with a resolution this year to the current parliamentary gridlock by no means a given.”
Seamus Nevin, chief economist at Make UK, the manufacturers’ organisation, agrees that UK companies needs some relief from Brexit uncertainty:
“While the positive performance of manufacturing will come as a relief after months of concern survey anecdotal evidence suggests that the results may, once again, be due to no-deal Brexit contingency planning, stockpiling and declining export demand for UK goods rather than a sign the economic fundamentals are sound.
This, along with the increasing global economic slowdown again reinforces why British businesses need certainty on what form of Brexit the country is headed for. Business are trying to standstill until the Brexit fog clears but in doing so they are actually going backwards.”
Marc-André Fongern 🇪🇺 (@Fongern_FX)
*UNITED KINGDOM FEB 2019 GDP ESTIMATE MM DECREASE TO 0.2 % VS. PREV 0.5 % -BBG. … Despite the uncertain outlook, pretty reasonable data. Anyway, the U.K. stockpiles for an event, called Brexit…So don’t get too overexcited ! @graemewearden #Brexit $GBP
As monthly GDP figure are rather volatile, you get a better picture of the UK economy by looking at the rolling three-month data.
It shows that growth peaked last summer (thanks to good weather, some World Cup excitement), before slowing in the second half of 2018. 2019 hasn’t been too impressive so far either:
The ONS’s head of GDP, Rob Kent-Smith, says:
“GDP growth remained modest in the latest three months. Services again drove the economy, with a continued strong performance in IT.
“Manufacturing also continued to recover after weakness at the end of last year with the often-erratic pharmaceutical industry, chemicals and alcohol performing well in recent months.”
Britain’s services companies, which makes up around three-quarters of the economy, didn’t sparkle in February.
Service sector GDP only rose by 0.1% during the month, down from 0.3% in January.
Building firms did better, though, with output rising by 0.4% (better than expected).
But as you can see, industrial companies were the busiest:
UK GDP report for February Photograph: ONS
This chart from today’s GDP report shows how UK manufacturing output has accelerated this year, as the threat of supply chain disruption has intensified.
Brexit stockpiling by nervous companies appears to have driven UK growth last month.
Industrial production jumped by 0.6% during February, driven by a 0.9% surge in manufacturing, today’s GDP report says.
The Office for National Statistics says it has seen “some qualitative evidence” that manufacturers have been boosting production ahead of Britain’s exit from the EU, saying:
Following a period of contraction, output in production and manufacturing has risen for the second month in a row, the latter driven by domestic demand. Manufacturing is now at its highest level since April 2008….
This was driven by pharmaceuticals, food products (including beverages) and chemicals, although it was partially offset by a fall in motor vehicle production.
On an annual basis, the UK economy expanded by 2.0% in the last quarter — the best results since late 2017.
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