Snapshot - Economics

Brexit uncertainty weighs on UK GDP growth

The weak growth figures point to risk of recession this year.

11 February 2019

Azad Zangana

Azad Zangana

Senior European Economist and Strategist

  • Sterling weakens against the dollar after news UK growth slowed to 0.2%
  • Rise in government spending helped bolster growth
  • Slow growth highlights risk of recession in the first half of this year

Growth in the UK economy slowed sharply in the final quarter of 2018 as Brexit uncertainty weighed on business investment. Real GDP growth fell from 0.6% in Q3 to just 0.2% in Q4, lower than consensus forecasts of 0.3%. The latest figures complete the numbers for 2018 where, for the year as a whole, GDP grew by 1.4% - its weakest growth rate since 2013.

To make matters worse, the monthly data shows that the economy contracted by 0.4% in December. While this is only a monthly figure, it is an unusually big drop and highlights the weak state of the economy. 

Within the detail of the quarterly figures, only the services sector managed to generate positive growth as output from both the construction sector and wider production sectors was down over the quarter.

Looking at the contributions from expenditure, household spending remained steady, growing at 0.4%, although economy wide investment was down 0.5%. Business investment was particularly weak, contracting for the fourth consecutive quarter.

Meanwhile, government spending rose 1.4% over the quarter – its fastest quarterly rate since the first quarter of 2012. Without this odd rise in spending, GDP growth would have been negative.

Finally, it’s worth mentioning that while exports accelerated over the quarter, imports grew even faster, causing net trade to slightly drag on GDP growth. 

Overall, this is an ugly set of figures for the economy. Brexit is clearly having a negative impact on sentiment and growth, and it raises the risks of a recession in the first half of the year.

  • Click here to read Azad Zangana's views on the Bank of England's recent growth downgrade.   

Important Information: This communication is marketing material. The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change.  To the extent that you are in North America, this content is issued by Schroder Investment Management North America Inc., an indirect wholly owned subsidiary of Schroders plc and SEC registered adviser providing asset management products and services to clients in the US and Canada. For all other users, this content is issued by Schroder Investment Management Limited, 1 London Wall Place, London EC2Y 5AU. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.