The impact of uncertainty over Brexit weighed down on the economy of the United Kingdom in the third quarter as it grew at its slowest annual rate in almost a decade.
According to data from the Office for National Statistics, in the three months ended September, the British economy grew at a paltry 1 per cent compared to the same period a year ago. This is the slowest annual growth rate forte economy since the start of 2010.
After a negative reading in the second quarter, the quarterly growth rebounded to 0.3 per cent which helped the country to avoid a recession. However for the UK government that is soon to face a general election in about a month, that fact is not much of a consolation. Further, the ONS data, there is evidence of distress in the economy.
Business investment and productivity has taken a hit because of years of confusion over Brexit which has prompted some economists to urge the UK’s central bank to announce more stimulus to boost the economy.
“Unless Brexit uncertainty fades and a fiscal boost is forthcoming, then this might make the Bank of England more inclined to cut interest rates before long,” said Ruth Gregory, senior UK economist at Capital Economics.
According to the ONS, while there was a narrowing of the trade deficit because of greater exports of goods and services during the third quarter, manufacturing remained flat over the time period. The only positive was the increase in household spending, Gregory said.
“With the election just under five weeks’ away, clearly this isn’t the good news the government might have hoped for,” said Gregory.
The national elections next month will be the third for the country in four years which is an attempt by the country’s polity to break a Brexit deadlock in parliament which has significantly impacted the business and investment activity. However whether the vote would be able to solve the Brexit deadlock is far from certain and according to some, the country’s political system could be plunged deeper into crisis and chaos because of the parliamentary vote while further the uncertainty over how Britain will trade in the future.
The United Kingdom’s “economic and fiscal strength are likely to be weaker going forward and more susceptible to shocks than previously assumed” irrespective of how Brexit is settled, Moody’s said on Friday. It could soon downgrade its rating on UK government debt, the ratings agency also warned.
The “Brexit-era policymaking process” has been characterized by “inertia and, at times, paralysis” and the UK institutions have undergone lasting damage, Moody’s said.
The best chance of a sustained economic recovery could be delivered by a victory for Prime Minister Boris Johnson’s Conservative Party, said Berenberg’s senior economist Kallum Pickering.
Pickering said in a note that a victory of the Conservative “would put the UK on the path to an orderly Brexit on 31 January 2020” as well as stop the Labour Party leader Jeremy Corbyn form conducting any form of dramatic changes to the UK economy.
He added that household spending remained strong and “if political risks can fade a little, household spending can underpin a healthy rebound in domestic demand.”
(Adapted from CNN.com)