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UK economy shrank in March at height of no-deal Brexit turmoil

Stockpiling likely to have boosted manufacturing output, says Office for National Statistics

Ben Chapman
Friday 10 May 2019 10:55 BST
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Bank of England Governor Mark Carney: Brexit has already hit UK GDP by up to £40bn

The UK economy shrank 0.1 per cent in March as the country lurched towards a potentially disorderly exit from the EU, official figures show.

However, growth picked up to 0.5 per cent in the first three months of the year, up from 0.2 per cent in the previous quarter and in line with the Bank of England’s forecast.

The quarterly figure is less volatile and prone to adjustment than the single-month figure but the trend over the three months was downwards.

Growth was 0.5 per cent in January, 0.2 per cent in February and -0.1 per cent in March.

Much of the expansion was down to a 2.2 per cent boost to manufacturing, its quickest quarterly growth for more than 30 years.

Some of the boost is likely to have been the result of stockpiling ahead of Brexit as manufacturers sought to build up supplies in anticipation of disruption, the ONS said.

However, it added that it was “difficult to unpick” the temporary Brexit effect from other factors.

Growth in the services sector, which accounts for more than three-quarters of the UK economy and is not prone to the stockpiling effect, slowed to 0.3 per cent from 0.4 per cent.

Services covers a broad range of activities from accountancy to hospitality and leisure, which collectively make up the bulk of UK economic output.

Construction grew 1 per cent in the first quarter but industry figures warned that continued political and economic uncertainty was having a negative impact on output.

Growth was driven by repair and maintenance rather than new projects, said Clive Docwra, managing director of construction consultants McBains.

“There was no growth in new work across the first quarter of the year, including a decrease in private commercial and housing work,” he said.

“This reflects that many investors are still deferring decisions on projects until Brexit is resolved – and we’re perhaps further away than ever on certainty and finality in that regard.”

The Office for National Statistics said: “The strength in quarterly growth is in part due to the low December 2018 monthly growth in the base period, which makes the current period look stronger in comparison.”

On a longer-term measure, the UK economy was 1.8 per cent larger between January and March 2019 than it was in the same quarter a year ago.

The Institute of Directors said the improved quarterly growth number could be a “flash in the pan”.

“Some businesses brought activity forward early this year in preparation for leaving the EU, so higher stocks and earlier orders have artificially bumped up the growth numbers,” said Tej Parikh, the IoD’s senior economist.

“In Q2 many firms will be keen to run down their Brexit caches, which will drag on economic growth. Keen consumers also played a key role in lifting sales in the first quarter, but barring temporary boosts due to weather, households will overall remain cautious in the months ahead.”

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