UK economic growth slowed in fourth quarter

Posted: 11 Feb 2019

UK economic growth slowed in the final quarter of last year as car manufacturing declined at its steepest rate in just under a decade.

Gross domestic product (GDP) growth fell to 0.2% between October and December, according to the Office for National Statistics (ONS).

This compares to 0.6% growth in the previous quarter, when warm weather and the World Cup contributed to a boost in economic activity.

Meanwhile, annual GDP increased by 1.4%, the weakest it has been since 2009.

Sterling tumbled following the news, dropping 0.4% versus the US dollar to 1.28. Against the euro, the pound was down 0.1% at 1.14.

But Prime Minister Theresa May's official spokesman said: "The UK economy continues to grow and remains fundamentally strong.

"Growth of 1.4% in 2018 means the UK has grown every year for the past nine years and the OBR (Office for Budget Responsibility) expects it to continue growing in every year of the forecast.

"The UK is currently enjoying the longest unbroken quarterly growth of any G7 nation and has outperformed the OBR forecast of 1.3% growth in 2018."

Car production was down 4.9% in the period, marking the biggest decline since the first quarter of 2009.

Total production output slipped by 1.1%, the largest decline since the end of 2012. This included a 0.9% dip in manufacturing.

Construction was also lower, dropping 0.3% in the fourth quarter. This follows two consecutive quarters of growth during the summer, when companies caught up with work delayed by adverse weather early in the year.

Although services output was up, growth slowed to 0.4% following a relatively strong performance during the summer.

The ONS said it reflected a slowdown across a number of industries, as Brexit-related concerns weighed on business-to-business spending at the end of 2018.

Rob Kent-Smith, head of GDP at the ONS, said: "GDP slowed in the last three months of the year with the manufacturing of cars and steel products seeing steep falls and construction also declining. However, services continued to grow with the health sector, management consultants and IT all doing well.

"Declines were seen across the economy in December, but single month data can be volatile meaning quarterly figures often give a better indication of the health of the economy.

Compared with the same quarter in 2017, the UK economy is estimated to have grown by 1.3%, the weakest in six years. It was last weaker in the second quarter of 2012.

On a month-to-month basis, GDP fell 0.4% in December. This was the biggest monthly drop since March 2016.

Howard Archer, chief economic adviser at EY Item Club, said the figures were "disappointing".

"The UK economy clearly changed down into a much lower gear in the latter months of 2018 as heightened economic, political and Brexit uncertainties fuelled business caution in particular," he said. "There are also signs of consumers becoming more cautious despite a pick-up in their purchasing power."

Samuel Tombs of Pantheon Macroeconomics warned against interpreting the data as evidence of an impending recession.

He said: "On the face of it, the sharp fall in GDP in December looks alarming, but it isn't unprecedented - it also fell by 0.4% in March 2016 - and it was driven by sectors which have historically been volatile."

Separately, the ONS data dump showed that Britain's total trade deficit widened slightly in the last three months of the year by £900 million to £10.4 billion, due to a rise in goods imports including cars and chemicals.

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