UK economy wilts as Brexit jitters hit business investment

The UK economy buckled under the strain of Brexit uncertainty in the fourth quarter.

Gross domestic product increased a smaller-than-forecast 0.2%, compared with 0.6% in the third quarter. December alone saw the economy shrink by 0.4%, the most since before the 2016 vote to leave the European Union.

The slowdown came as businesses cut investment for a fourth consecutive quarter, the longest continuous decline since the financial crisis, and the weakening global economy hit trade. The pound fell 0.3% to $1.2909 as of 09:46 in London.

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But there was no widespread evidence of stockpiling as the prospect of a no-deal Brexit looms larger, with inventories rising just 1.6bn pounds in the quarter.

While organisations such as Heathrow airport and Unilever have said they are keeping more on the storeroom shelf to guard against disruptions to supplies brought in from the EU, the Office for National Statistics said Monday a relatively small number of firms reported taking similar action.

The economy is facing the worst year for growth since 2009, with economists warning of a recession if Britain leaves the EU without a deal to smooth the transition on March 29. The Bank of England sees growth of 0.2% in the first quarter, but the sudden loss of momentum at the end to 2018 suggests the economy could stagnate, as indicated in recent purchasing manager surveys.

'Fog of Brexit' 

With wage pressures building, the BOE might in different circumstances be preparing to raise interest rates. But officials last week signaled they have no intention of doing so until the “fog of Brexit” has cleared.

The fear gripping business was illustrated this month when Japanese carmaker Nissan scrapped plans to build a new model in Sunderland. Airbus, which makes wings for commercial aircraft in Britain, has also threatened to switch investment elsewhere. Business investment fell 0.9% in 2018.

Brexit is not the only threat facing the economy. Major markets from the Eurozone to China are losing momentum, weakening demand for British exports. Net trade cut 0.12% points from growth in the fourth quarter as the trade deficit hit the highest in more than two years.