UK economy grows at slowest annual pace in nearly a decade

Britain’s economy grew at its slowest annual pace in nearly a decade during the three months to September as the global slowdown and Brexit worries hit manufacturing and business investment, official figures showed on Monday.

While the economy dodged outright recession, the rebound in quarterly growth was smaller than expected. Output fell in August and September - when Britain looked at risk of leaving the European Union without a transition deal.

A month before an early election, finance minister Sajid Javid hailed what he called “solid” growth figures, a view challenged by the opposition Labour Party.

“The fact that the government will be celebrating 0.1 per cent growth in the last six months is a sign of how low their hopes and expectations for our economy are,” Labour’s top finance official John McDonnell said. Economists said ongoing political uncertainty and a weak global backdrop could prompt the Bank of England to cut interest rates next year, even if Prime Minister Boris Johnson passes his Brexit deal before a new Jan. 31 deadline. “Narrowly avoiding a recession is nothing to celebrate,” said Tej Parikh, economist at the Institute of Directors.

“The UK economy has been in stop-start mode all year, with growth punctuated by the various Brexit deadlines.” Annual gross domestic product growth fell to 1.0 per cent in the third quarter from 1.3 per cent in the April-June period, the Office for National Statistics said, its lowest since early 2010. This was weaker than the eurozone, which grew by 1.1 per cent.

The quarterly growth rate recovered to 0.3 per cent after contracting 0.2 per cent in the three months to June when businesses wrestled with an overhang of raw materials stockpiled before the original Brexit deadline in March. But it was a weaker rebound than the 0.4 per cent growth predicted by the BoE and private sector economists.

Britain’s economy has lost momentum since the 2016 Brexit referendum, before which it typically grew more than 2 per cent a year. Last week the BoE nudged up its growth forecast for 2019 to 1.4 per cent from 1.3 per cent. This would be the same growth rate as last year and the weakest since the financial crisis. For 2020, the BoE expects a slowdown to 1.3 per cent. Two BoE policymakers voted to cut rates last week and others could follow if growth remains weak and uncertainty persists about the longer-term trade ties between Britain and the EU. “The BoE forecasts an investment rebound if a Brexit deal removes no-deal risk but we think this is optimistic,” said Nancy Curtin, chief investment officer at Close Brothers. Business investment held steady in the third quarter but dropped by 0.6 per cent on the year, the ONS said. Manufacturing output fell more than expected, down 0.4 per cent on the quarter and 1.8 per cent on the year. Household spending, which has been more resilient than business investment, due to low unemployment and rising wages, rose by 0.4 per cent on the quarter. Government spending grew by 0.3 per cent.

Meanwhile the British shoppers grew more cautious about their spending in the three months to September despite enjoying real growth in their wages, raising concerns about the health of the economy in the run-up to Brexit.

Monthly retail sales volumes were flat in September and annual sales growth picked up to 3.1 per cent from a weak 2.6 per cent in August, the Office for National Statistics (ONS) said — slightly less of a recovery than economists had forecast in a Reuters poll.

“Food shops bounced back after a weak few months, but there was yet more bad news for department stores, with sales continuing to fall in September,” ONS statistician Rhian Murphy said.

Consumer spending has been the biggest driver of British economic growth since June 2016’s referendum to leave the European Union (EU), but there have been increasing signs that this is starting to soften.

Looking at the third quarter as a whole, which strips out monthly volatility, quarterly sales growth held steady at 0.6 per cent while the annual pace of expansion dropped to 3.1 per cent from 3.6 per cent, the weakest growth since the final quarter of 2018.

Some retailers also said bad weather had hurt demand too, the ONS added. Sales in the ‘non-specialised stores’ category — which includes department stores — dropped by an annual 2.0 per cent in the third quarter, the biggest decline since the first three months of 2009 when Britain was mired in recession.

The figures chime to a degree with a British Retail Consortium survey that showed the biggest fall in retail spending of any September since at least the mid-1990s.

Reuters