Brexit is clearly taking its toll on UK economic growth | Business News
As is so often the case, the most interesting detail in today’s economic growth numbers were to be found somewhere beneath the surface.
For beneath the headline figures which showed that the economy grew by 0.2 per cent in the final quarter of last year were a couple of striking stories: first, that the economy is looking weaker than those big numbers suggest; second, that that weakness owes rather a lot to Brexit.
But let’s start with the big numbers.
For on the surface the economy looks in alright, if not brilliant, shape.
Growth of 0.2% was a bit weaker than expected, but it’s stronger than the growth rates we’ve seen in Italy and are expected to see in Germany later this week.
It’s weaker than the growth we’re seeing in the US or Canada, but at worst it leaves the UK middle of the G7 table.
Moreover, the annual growth rate of 1.4% in 2018 is actually a little stronger than the Office for Budget Responsibility expected in its latest forecasts.
But delve into the detail and things become a little less encouraging.
For one thing, that when you put it at two decimal places, growth in the fourth quarter was 0.17%, which looks a bit weaker than 0.2%, and is barely more than half the 0.3% economists forecast.
Second, look at the monthly pace of economic growth and something else leaps out at you.
The economy, it turns out, grew by 0.2% in October and November, but then contracted by 0.4% in December.
Every sector save agriculture shrank, from the services to the manufacturing and construction sectors.
Now, these monthly figures are volatile, but the sharp contraction fits in with other evidence we’re seeing from business activity surveys that the economy slowed, and perhaps even contracted, at the turn of the year.
The second detail that’s worthy of note concerns the breakdown of the growth numbers.
Part of the explanation for weak growth is the fact that export growth is dropping. That would seem to reinforce the narrative that weak UK growth is at least in part due to the weakness we are seeing on the other side of the Channel.
However, there are other explanations – not least the performance of business investment.
For it turns out that business investment has now fallen for four successive quarters. This is the first time there has been a continuous 12 month fall in investment since the financial crisis – indeed it’s the only non-recession fall in investment we’ve seen since comparable numbers began in 1997.
Given investment cutbacks are the main consequence of the referendum, according to most business surveys, this does appear to be a Brexit-related effect.
The figures from the ONS are not the only evidence of investment not happening in the UK.
A study published this morning by the Centre for Economic Performance at the LSE dissects how foreign investment has changed behaviour since the referendum.
Even as UK firms shift their post-referendum investments over the channel the amount of investment coming across from the EU is lower than one would have expected. Again compare the dotted line (what one might have expected) with the solid line (what actually happened) pic.twitter.com/T7ttEeT55P
— Ed Conway (@EdConwaySky) February 11, 2019
According to the LSE researchers, UK firms appear to have started to shift much of their investment to the EU – evidence of money that might otherwise have been spent on factories and units in the UK going across the Channel.
The overarching point is that Brexit is clearly taking its toll on UK economic growth.
However there is some good news: much of this money – the investment foregone, the cash left in bank accounts rather than being spent, the items stockpiled – could easily be pumped back into the economy the moment businesses regain their confidence in the path the UK is taking post-Brexit.
So all eyes back on Westminster as it nears the Article 50 deadline, at which point the UK is due to leave the EU.