Recession avoided, but confidence remains in short supply

The UK avoided a technical recession today with publication of the latest growth figures.

Real GDP increased by 0.3% in the third quarter of 2019 – compared with a negative figure of -0.2% in the second quarter – though annual growth has hit its lowest level since 2010.

Today’s GDP report shows that private consumption, Government spending and net trade all made a positive contribution to growth, meaning Great Britain avoided a second quarter of negative figures.

But business investment contracted in the third quarter, and manufacturing has also shrunk over the past six months.

Car production slumped in the second quarter because auto plants brought their annual shutdowns forward to April, in case of a hard Brexit. That meant the production bounced back in the Summer.

But stripping out car making, UK manufacturing is clearly struggling. The Office for National Statistics (ONS) said: “Manufacturing failed to grow in quarter three 2019, with falls in many industries almost solely offset by an increase in the manufacturing output of transport equipment.”

Tej Parikh, chief economist at the Institute of Directors, fears growth could slow in the current quarter, continuing the recent ‘yo-yo’ formation.

He said: “The UK economy has been in stop-start mode all year, with growth punctuated by the various Brexit deadlines.

“Indeed, the pick-up in the third quarter numbers may slightly exaggerate the strength in the economy, with some activity likely to have been brought forward before October 31. The final quarter of 2019 could be weaker as stockpiles continue to be run down.”

He added: “While high employment has provided some support for the economy, underlying weaknesses in investment and productivity still need addressing.

“With uncertainty likely to persist and a continued slowdown in global markets, the onus is on the new Government to stimulate economic activity and move the UK beyond its current yo-yo pattern of growth.”

Artur Baluszynski, head of research at financial consultants Henderson Rowe, said: “The UK has ducked a recession but has seen the weakest growth in a decade.

“Brexit aside, the UK will struggle to expand if the rest of the global economy is slowing down. After a strong July and August, September was weaker.

“We would expect next quarter to remain modest, despite the seasonal boost, as trade tensions and political uncertainty are set to continue.”

Andy Scott, associate director at financial advisor JCRA, said that while sterling took today’s figures in its stride, events over the next month or so might eventually impact the pound.

“Today’s data contains nothing particularly surprising and hence sterling barely reacted with a shrug.

“The continual delay to the Brexit process means the UK remains an uncertain environment to invest in for businesses, which results in slower growth.

“The fact that a General Election is under way in the fourth quarter, with the risk of either a hung Parliament, or potentially a socialist Labour Party forming a coalition government, suggests a further deceleration or stagnation as we close out 2019.

“While the fog of Brexit hangs in the air, the clouds over the economy continue to darken.

“Sterling, meanwhile, has taken the decision to have an early General Election and the news that two Bank of England members voted for a rate cut last week, largely in its stride.

“Sterling is currently trading at 1.28 versus the Dollar, down only two cents from a five-month high reached last month, while it is trading at 1.16 versus the Euro, less than half a cent from its recent highs.

“The next test for GBP investors is now only a month away, what to do if the betting odds are right and the most likely outcome is a hung Parliament? While UK politics has been far from functional of late, increased instability in Westminster would surely cause even the most optimistic GBP bulls to rethink and retreat.”