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Brexit fears slow British growth, hit consumers and businesses

Data shows negligible growth in household spending and flat business investment

Reuters  |  London 

Brexit, UK
Children jump up to grab a European Union flag during an anti-Brexit demonstration after Britain's Prime Minister Theresa May triggered the process by which the United Kingdom will leave the Euopean Union, in Birmingham, Britain

Britain's suffered weakness on all fronts in the three months to June, with shoppers pinched by the pound's tumble, failing to fill the gap, and business investment frozen by uncertainty.

The Office National Statistics confirmed on Thursday the grew 0.3 per cent in the second quarter after 0.2 percent in the first -- adding up to the slowest growth for any major advanced since the start of 2017.

The data showed negligible growth in household spending and flat business investment.

A separate report suggested the malaise will continue. The Confederation of British Industry said retail sales growth slowed in August at the fastest pace in more than a year.

Last year surprised most economists by continuing to grow strongly during the six months after the June vote to leave the European Union.

The growth was powered by robust consumer spending, despite a fall of around 15 per cent in the value of the pound after the financial markets downgraded Britain's long-run prospects following the vote.

But Thursday's figures showed household spending is flagging with the weakest quarterly and annual growth since late 2014. Investment and foreign trade failed to compensate, despite a weaker currency and strong global

"Sterling's depreciation is doing more harm than good," Samuel Tombs of consultancy Pantheon Macroeconomics said.

Consumer price inflation rose to a four-year high of 2.9 per cent in May off the back of the weaker pound, and real-term growth in household spending slid to a quarterly rate of just 0.1 per cent in the three months to June, the ONS said.

Flat year-on-year business investment undershot economists' expectations for a modest 0.5 percent rise, while net trade contributed nothing to quarterly growth and acted as a 0.5 per cent drag on Britain's annual performance.

"The most recent three months growth has been almost entirely reliant on spending by households and government ... which doesn't feel like the most stable of foundations for a post-economy," said Lee Hopley, chief economist for manufacturing trade body EEF.

Barclays said the data was "highlighting just how much businesses are holding back investment in the face of high levels of uncertainty".

WORRIES

started formal talks to leave the in June, but businesses have complained that progress appears slow in light of the fixed deadline to leave in March 2019.

negotiators want agreement on membership dues, existing immigrants' rights and Britain's land border with Ireland before starting more substantive talks on future trade arrangements later this year.

The uncertainty and the weaker pound are also taking a toll on workers in Britain, who are crucial to some sectors.

Other official data on Thursday showed net migration to fell to a three-year low of 246,000 in the 12 months to March, as fewer immigrants arrived and growing numbers left.

British farms, food processors and restaurants -- which all rely heavily on migrant workers -- also complained on Thursday that they faced labour shortages.

High immigration has been an important component of British economic growth since the financial crisis, due to weak underlying productivity. On a per capita basis, Britain's grew just 1.0 per cent in the year to the end of June, its weakest rate in a year.

Total growth was 1.7 per cent, one of the weakest readings in four years.

The Bank of England said earlier this month it expects the to grow 1.6 per cent this year -- slower than it had previously forecast but in line with economists' expectations.

While it expects growth in household consumption to slow to 1.75 percent this year as inflation approaches 3 percent, it forecasts export volumes will rise by 3.5 per cent and business investment will increase by 1 per cent.

First Published: Thu, August 24 2017. 21:14 IST
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