News ID: 238707
Published: 1133 GMT February 11, 2019

UK economic growth expected to halve in final quarter of 2018

UK economic growth expected to halve in final quarter of 2018

UK growth slowed sharply in the final three months of 2018 as Brexit anxiety weighed on consumers and firms, official figures published on Monday showed.

City economists estimate that economic growth halved to just 0.3 percent in the fourth quarter of last year, compared with 0.6 percent growth in the third quarter, according to

If confirmed by the Office for National Statistics, it would be the slowest growth since the first quarter of 2018 when GDP increased by just 0.1 percent.

Philip Shaw, the chief economist at Investec, said growth in December alone was likely to have flatlined.

“Putting the pieces together, we are forecasting GDP to have remained unchanged in December, although it is possible that we see a very small gain,” he said.

“This results in a 0.3-percent rise [for the fourth quarter].

“We will look closely at business investment — the area which we consider to be the most affected by Brexit worries — and specifically to see if it recorded its fourth consecutive quarterly decline in the fourth quarter.”

Last week, the Bank of England left interest rates on hold and said it expected UK growth in 2019 to be the slowest since the depths of the financial crisis a decade ago, blaming mounting Brexit uncertainty and the global slowdown.

Policymakers at Threadneedle Street sharply lowered their forecasts for growth in 2019 to 1.2 percent from a previous estimate of 1.7 percent. The forecast for 2020 was revised down to 1.5 percent from 1.7 percent.

Lower growth in the UK would follow a similar pattern in some of the eurozone’s biggest economies. Italy went into recession in the fourth quarter, and fears are mounting that Germany — Europe’s largest economy — might have suffered the same fate.

PLS Resolution Foundation, the UK thinktank, has said UK families have been left poorer since the Brexit vote, which led to a plunge in sterling in 2016, pushing up inflation and eroding real wages.

Average household incomes today are £1,500 lower than the Office for Budget Responsibility predicted in 2016, Resolution says in a report. That is the sharpest slowdown in income growth of any advanced economy.

Resolution’s report adds that while income growth across most advanced economies has underperformed in recent years, the UK has experienced the biggest slowdown of all, from 4.9 percent in 2015 to -0.1 percent in 2017.

“Had household incomes grown in line with other advanced economies they would have been £2,000 higher in 2017,” it said.

This cost of living squeeze has hurt Britain’s high streets too, where Oddbins, Patisserie Valerie, Greenwoods, Chapelle, Treds and HMV have all recently entered administration. Since Christmas Day, a total of 18,722 jobs at retail chains have either been cut, or put under threat, according to management consultancy Altus Group.

In slightly better news for consumers, data published on Wednesday is expected to show UK inflation slowed to a two-year low of two percent in January, from 2.1 percent in December, as the impact of Ofgem’s energy price cap feeds through.

The last time inflation was lower was in January 2017, when it was 1.8 percent. It would also mark the first time inflation was bang on the Bank of England’s official two percent target since December 2013.

Inflation has steadily fallen over the past year, having risen sharply in the aftermath of the 2016 Brexit vote as the sharp drop in the value of the pound pushed up the price of goods and services imported from abroad. The headline annual rate peaked at 3.1 percent in November 2017.

The fall in inflation has eased the squeeze in UK living standards, which were in decline for much of the period since 2008 as the rise in the cost of living outpaced wage growth.

Average household incomes are no longer falling in real terms, with regular pay growth (excluding bonuses) of 3.3 percent year-on-year between September and November 2018, easily outpacing inflation.

However, the latest reports suggest that consumers are not in the mood to commit to big purchases, uncertain about what impact Brexit will have on the economy and their personal finances. UK house prices fell 2.9 percent in January, according to the mortgage lender Halifax as Brexit fears put off buyers; new car sales fell 1.6 percent in the same month.

Retail sales figures for January to be published on Friday will offer the latest insight on the willingness of consumers to spend money on non-essential items in the runup to Brexit.




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