UK economy flatlined at the end of 2019 but recession on the way, experts warn
Britain’s economy stagnated at the end of 2019 as official figures confirmed household spending failed to grow for the first time in four years and business investment tumbled, but experts warned this was the calm before the storm.
The Office for National Statistics (ONS) said gross domestic product (GDP) was flat in the fourth quarter of 2019, unrevised from the initial estimate.
The data shows the impact of the Brexit woes and general election at the end of last year, though the impact is expected to pale in comparison to the devastating effects of the coronavirus crisis from the first quarter of 2020.
Experts are predicting a deep recession in the UK and wider global economy amid lockdown measures to slow the spread of the Covid-19 pandemic.
Pantheon Macroeconomics has warned that UK growth could fall by 1.5% between January and March before plummeting by 13% in the following quarter.
The latest ONS figures show that the economy had largely ground to a halt at the end of last year as household spending flatlined, while business investment fell 0.5% as firms postponed projects and long-term decisions.
Rob Kent-Smith, head of GDP at the ONS, said: “Growth in services was offset by a drop in construction and yet another fall in manufacturing.
“Household spending also saw no growth in the last three months of the year, while business investment continued its recent weak path, with a decline at the end of 2019.”
The ONS said the economy grew by 1.4% overall in 2019, but it revised up first-quarter growth to 0.7% and said output fell more than first thought in the second quarter, down by 0.2%, according to the latest figures.
It had previously estimated that the economy grew by 0.6% in the first quarter and fell by 0.1% between April and June.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “The national accounts confirm that heightened political uncertainty put the brakes on the economy in the fourth quarter.”
He added that there is far greater economic pain to come from the Covid-19 crisis.
He said: “Policymakers have acted decisively to soften the blow to incomes, but households likely will cut back sharply on discretionary spending, until they feel secure in their jobs again.
“The saving rate jumped by four percentage points during the last two recessions, and a similar rise seems likely this time.”
The ONS also released data revealing that Britain’s current account deficit narrowed to £5.6 billion in the fourth quarter – down from £19.9 billion in the previous three months and marking the lowest level since 2011.
Overall in 2019, the current account deficit widened slightly by £900 million to to £83.8 billion, but the figures showed the UK’s total trade deficit narrowed from £29.8 billion in 2018 to £25.9 billion last year.
Mr Tombs said: “The sharp decline in the current account deficit in the fourth quarter primarily was due to volatility in non-monetary gold trade and a collapse in imports after the Brexit ‘deadline’ in October.”