UK economy rebounds in January despite Brexit uncertainty – Monthly GDP growth posts biggest rise since December 2016 after weak end to year

UK manufacturing output rose by 0.8% following a drop of 0.7% in December.

The British economy staged an unexpected fightback in January as manufacturing and retail sales growth recovered from a weaker end to last year, despite mounting uncertainty over Brexit.

The Office for National Statistics said monthly GDP growth jumped to 0.5% in January, the biggest rise since December 2016, reversing a drop of 0.4% in the final month of last year.

City economists had forecast a monthly growth rate of 0.2%, although several analysts said the unexpected shot in the arm in January – arriving just before the chancellor’s spring statement on Wednesday – would probably lead to stronger growth over the first quarter.

John Hawksworth, the chief economist of PwC, said: “There are no signs yet that uncertainty over Brexit has pushed the economy as a whole into recession. If an orderly Brexit can be achieved, then the economy should pick up speed again in the second half of this year.”

The main drivers of the UK economy – services, production, manufacturing and construction – all made a positive contributions to monthly growth, after a weaker end to 2018 when every single major sector recorded declines.Advertisement

Consumer spending growth helped the services sector – which accounts for about 80% of the economy – to grow by 0.3% in January after a fall of 0.2% in December, while the construction sector reversed a fall of 2.8% to grow by the same amount last month. Manufacturing output rose by 0.8% following a drop of 0.7% in December.

Despite the positive monthly performance the ONS said economic growth in the wider three months to the end of January remained sluggish, as fading demand for manufactured goods around the world weighed on the UK.

Analysts cautioned that monthly growth figures can prove volatile, meaning a rise in January could be revised. Much of the rise in monthly manufacturing output came from the pharmaceuticals industry, which can provide erratic readings on the strength of the economy.

Over the three-month period, which is the ONS’s preferred barometer for economic growth because it smooths over volatile monthly statistics, GDP growth remained a steady 0.2%, the same as the three months to December.

Suren Thiru, the head of economics at the British Chambers of Commerce, said: “The data for the longer three-month period recorded an economy that was continuing to slow under the weight of uncertainty over Brexit and weakening global trading conditions.”

The ONS said there was a drop in sales of metal products and cars over the period, as well as sliding levels of construction repair work, holding back economic growth.

Britain’s trade deficit widened in January by more than expected as imports into the UK grew faster than exports – potentially a signal of the slowing global economy. The trade in goods deficit increased to £13.08bn, compared with expectations for a shortfall of £12.2bn.

Some analysts said the rise in imports could be a sign of UK manufacturers buying in more components to stockpile them before Brexit.

The unexpected recovery in January came after recent surveys had indicated that the UK economy was coming close to stalling point at the start of the year, as Brexit nears.

Analysts warned that lack of clarity over the UK’s future trading relationship with the EU, as Theresa May struggled to win support for her deal on Tuesday, would remain a drag on the economy over the coming months.

Yael Selfin, the chief economist of KPMG UK, said: “Clarity on the direction of Brexit should lift business confidence and increase investment, but that could take time to materialise, so we expect growth to remain subdued in the short term.”


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