The British economy is on track for the weakest year outside a recession since the second world war, as political turmoil and Brexit uncertainty dragged down growth, a Guardian analysis reveals.
At the end of a turbulent year and following Boris Johnson’s election victory, surveys of business activity suggest economic growth in the final three months of 2019 has essentially stalled. The jobs market is showing signs of stress and public borrowing is steadily rising again after a decade of improvement.
The Bank of England has downgraded its forecast for gross domestic product (GDP) to grow by only 0.1% in the fourth quarter as high street spending stalled and business investment was kept on hold before the election and amid Brexit uncertainty. Economic growth for 2019 as a whole is forecast to be just 1%, the weakest expansion outside a recession for more than half a century.
It comes as Andrew Bailey prepares to replace Mark Carney as the Bank’s next governor in March, tasked with steering the economy after Britain withdraws from the EU and while it attempts to strike new trade deals with other world partners.
The Conservatives promised a “tidal wave” of business investment would return to Britain if they secured a majority and unblocked parliament to take the UK out of the EU at the end of January.
However, two former Bank interest rate-setters warned the UK economy would continue to struggle for growth as Johnson faces complex trade talks with Brussels next year. The also warned the prime minister’s decision to leave the option of no-deal Brexit on the table will hold back business investment.
Writing in the Guardian, Andrew Sentance, a former member of the Bank’s monetary policy committee (MPC), said: “A new government and a new Bank of England governor. This should be a fresh start for the UK economy. But the dark shadow of Brexit continues to overhang our economic performance and prospects.”
To gauge the impact of Brexit on a monthly basis, the Guardian monitors eight economic indicators, along with the value of the pound and the performance of the FTSE 100.
City economists made forecasts for seven of those barometers before the data was released and in four cases the outcome was worse than expected, while in three cases it was better.
The pound has rallied strongly and stock markets have surged in recent weeks amid hopes that Johnson’s new government, with an 80-seat majority, can make progress towards smoothly extracting Britain from the EU. There are also hopes for stronger economic growth spurred by a splurge in government spending.
The FTSE 100 has raced ahead since the election on the back of the unexpectedly large Tory majority and amid signs of a breakthrough in the US-China trade war – a dispute that has dragged down global trade volumes and harmed economic growth around the world this year.
However, the UK economy appears to have suffered in the run-up to the election. Employment growth relied on public sector job creation, as business across the private sector shed workers and wage growth slowed.
According to surveys of business activity compiled by IHS Markit and the Chartered Institute of Procurement and Supply, the snap winter election depressed companies’ activity levels in November. Suggesting the economy stalled in the fourth quarter, Britain’s dominant services sector – which accounts for about 80% of the economy – failed to grow for the third month in a row. Manufacturing and construction activity also dropped.
Economists said Johnson’s election victory could provide companies with greater clarity required to boost activity levels, supporting stronger economic growth, but warned that lingering uncertainty over a trade deal with the EU would continue to hold back growth in 2020.
Writing in the Guardian, David Blanchflower, a former member of the Bank’s MPC, said: “Foreign firms and even some British firms will find it more attractive for many years to take whatever investment money they have to Germany, the Netherlands, Denmark or Sweden – which all look like safer havens than the UK.”
“Firms continue to stockpile as insurance against possible disruption from a disorderly Brexit. None of this is good for UK growth.”