The UK economy shrank by 0.4 per cent in December amid deepening uncertainty about the country’s future after Brexit. Analysts had predicted zero growth for the month.

The latest official data showed GDP suffered a sharp slowdown during the final three months of 2018, expanding by just 0.2 per cent between October and December, down from 0.6 per cent in the previous three months.

Annual growth dropped to a six-year low of 1.4 per cent in 2018, with economists warning the slowdown would likely continue into this year unless a Brexit deal is agreed.

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In addition to Brexit, Britain’s economy is also facing a fallout from a trade war between the US and China, and weakness in the eurozone where Italy has fallen into its third recession in a decade.

The services sector, which includes a range of industries from hospitality to accountancy, grew 0.3 per cent over the quarter but manufacturing shrank 0.9 per cent, the Office for National Statistics said.

In December alone, output fell in all broad sectors of the economy with construction down 2.8 per cent, manufacturing shrinking 0.7 per cent and services by 0.2 per cent.

A number of firms including Nissan, Jaguar Land Rover and Philips have recently announced plans to produce goods outside Britain.

Airbus last month renewed its warning to the government that it would have to re-evaluate its operations in the UK in the event of a no-deal Brexit.

Investment in the British car industry plunged 46.5 per cent last year as firms hold off making big decisions because of a continued lack of clarity, as well as the uncertainty for diesel cars.

Consumer spending growth, which has been driving the economy, was 0.4 per cent in the final quarter. However, consumer confidence has started to come under pressure with British households £1,500 worse off on average than was forecast before the June 2016 vote to leave the EU.

Households had been supplementing meagre earnings growth by increasing their levels of debt, but consumer credit growth dropped in December.

The Bank of England reported the annual growth of unsecured lending in the month fell to 6.6 per cent, down from 7.2 per cent in November.

This was the weakest figure since December 2014. Credit card lending growth slowed to 7.1 per cent, down from 7.9 per cent the previous month.

A number of economists precisted the slowdown would continue into 2019 unless the government could deliver a degree of certainty about the UK’s trading relationship with the EU.

Suren Thiru, head of economics at the British Chambers of Commerce, said Brexit ucertainty and slowing global growth were “suffocating” economic activity. 

He added: “The continued decline in business investment is a blackspot for the economy as it undermines the UK’s ability to raise productivity and increase our long-term growth prospects.

“It is increasingly likely that the slowdown at the end of 2018 will persist as continued Brexit uncertainty and the raised possibility of a no-deal exit from the EU weigh heavily on UK’s growth prospects. Firms are increasingly reporting having to divert staff, money and investment to protect against the chaos of a no-deal Brexit.”

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Paul Dales, chief UK economist at Capital Economics, said the ONS figures support the more downbeat view given by the Bank of England last week.

“But they also suggest there is plenty of scope for the economy to bounce back once the Brexit uncertainty is removed,” he said. 

“If there is a deal, we suspect GDP growth of 1.4% last year could be followed by something similar this year before a rise to around 2.2 per cent in 2020.”


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