Britain’s Brexit-bound economic growth beats analysts’ forecasts

Britain’s Brexit-bound economy unexpectedly grew in February, helped by manufacturers rushing to meet orders from clients who are stockpiling goods ahead of the country’s break from the European Union, official data showed. While still sluggish, the economy expanded by 0.2 per cent from January, the Office for National Statistics said.

Economists in a Reuters poll had expected zero growth. Britain’s economy has held up better than expected since the 2016 Brexit referendum although it has slowed since mid-2018 as the political impasse over the country’s departure from the EU deepened and as the world economy lost momentum.

The International Monetary Fund said that Britain would grow by 1.2 per cent in 2019, if it can avoid the shock of a no-deal Brexit. That would be faster than Germany’s 0.8 per cent and only a touch slower than France’s 1.3 per cent. But Britain still looks set for its weakest growth in a decade this year, even assuming a Brexit deal will be done, according to forecasts from the IMF and the Bank of England. Prime Minister Theresa May will ask EU leaders for a new delay to Brexit on Wednesday, just two days before Britain is due to leave the bloc without the cushion of a transition deal.

Wednesday’s data showed that over the three months to February, gross domestic product grew by 0.3 per cent, holding at the same pace as in January − which was revised up slightly from a previous estimate − and stronger than a forecast of 0.2 per cent in the Reuters poll. In annual terms, growth in February hit 2.0 per cent, the strongest pace since late 2017. Sterling briefly hit the day’s high, rising 0.2 per cent to $1.3086 before falling back.

Samuel Tombs, an economist with Pantheon Macroeconomics, said the resilience of the data − combined with wages that are growing at their fastest pace in a decade − would put renewed pressure on the BoE to raise interest rates this year.

“We continue to think that the 20 per cent chance that investors are attaching to a rate hike this year is far too low and still expect the (BoE) to raise Bank Rate once before the end of this year,” Tombs said in a note to clients.

The ONS said it saw signs that clients of manufacturers were stockpiling goods to get ahead of any border delays after Brexit, which was originally scheduled for March 29. Manufacturing output jumped by 0.9 per cent in February from January, accounting for about half of the overall economic growth rate. Economists have warned that a rise in orders before Brexit could lead to a pay-back of less demand later.

The ONS said it could not quantify the impact of stockpiling on the data. Britain’s dominant services sector grew by 0.1 per cent in monthly terms in February, held back by the 12th fall in a row in the financial services sector − the longest such run on record − while construction rose by 0.4 per cent. There were signs that the slowdown in the global economy was also weighing on Britain’s economy.

Export volumes fell by 0.4 per cent in the three months to February from the three months to November while imports jumped by 6.8 per cent. So far, Britain’s exporters have shown no sign of being helped by the fall in the value of the pound following the 2016 Brexit referendum.

Meanwhile the Britain’s energy market regulator Ofgem said on Thursday it will introduce new, stricter tests for energy suppliers entering the market from June after several firms collapsed.

Ofgem said that companies which apply for a licence to supply energy will have to undergo tougher tests to help improve standards for customers and reduce the risk of supplier failure.

Applicants for a licence will have to show they can fund their operations properly for the first year; how they expect to comply with regulatory obligations and how they expect to provide a proper level of customer service, it added. The regulator said it will consult in the summer on new proposals to raise standards of existing suppliers and review arrangements for suppliers exiting the market.

Three small energy companies have ceased trading this year while several also collapsed in 2018, leading to questions over the viability of some of Britain’s 50 or so independent energy suppliers which have taken market share from the “big six” companies over the past few years.

“Applying new requirements on suppliers entering and operating in the market will aid us to weed out those that are underprepared, under-resourced and unfit,” Mary Starks, executive director of consumers and markets at Ofgem, said in a statement. “This will help minimise the risk of supplier failure and help drive up standards for consumers,” she added.

Reuters