20 MAY

2019

Asset Class , Macro

United Kingdom: toing-and-froing weighing on growing

In 1Q 2019, UK growth came out at 2% QoQ (annualized). However, the growth breakdown sheds even more light on a trend visible for a few months now: subdued household consumption and productive investment (graph 1). Company re-stocking has given business activity a huge boost: over the past four quarters, stocks have contributed as much as consumption! The decision taken by companies and the government to anticipate the likelihood of supply shortages – Brexit was initially scheduled for 29 March – goes a long way to explaining this exceptional contribution (partly countered, admittedly, by the considerable negative contribution from imports). As for the good performance of UK exports, this is due largely to a similar re-stocking movement involving certain European companies in anticipation of Brexit (graph 2).

Over the next few months, there is every chance of growth continuing to weaken: the contribution from inventories will turn negative and there'll be an export slowdown. Uncertainty about the outcome of the negotiations with Europe will also continue to weigh on corporate investment. The latest Bank of England survey[1]  shows that, for no less than 25% of the companies queried, Brexit uncertainty will result in a decline in investment programmes. Nonetheless, with a jobless rate of 3.8% and wages up by more than 3%, consumption should, in the short term at least, prevent growth weakening dramatically …


[1] Result of the 2019Q1  Decision Maker Panel survey (Bank of England)