Published Monday 18th February 2019
Figures released in early February by the Office for National Statistics show that UK economic growth is at its lowest point for six years. The ONS reported annual growth in gross domestic product (GDP) of 1.4%, down from 2017’s figure of 1.8% and the lowest since 2012 (also 1.4%).
The Bank of England has, in line with these recent figures, adjusted downwards its predictions for UK economic growth for 2019. It now expects annual GDP growth of 1.2% which, if true, would indicate the slowest economic growth since 2009, when the economy was in recession. Some analysts are predicting more positive periods later in the year. However, with a global economy in decline and a national forecast full of uncertainty, what should be the expectation for businesses going forward?
A Cold Winter for the UK Economy
The disappointing annual GDP figures are largely down to poor economic performance in Q4 2018. During the months from October to December, the economy grew at 0.2%, down from a largely positive score of 0.6% in Q3. December itself was a particularly bad period for the UK, which saw GDP contract by 0.4%. This sudden decline is one of the main reasons why the Bank of England forecast for 2019 growth was changed, from a prediction of 1.7% growth made in November down to 1.2% just three months later.
The primary reason for this sudden decline in economic growth has been the disappointing performance of key sectors. Traditionally, the UK economy has been pushed forward by the services, production and construction industries, but only services saw an increase during Q4. In fact, during December all three of these previously reliable industries saw contracting growth, the first time this has occurred since September 2012.
UK Businesses on Brexit Pause
The three sectors previously mentioned include some of the worst-hit industries in the UK during Q4 2018. The UK car industry is a notable example, suffering a decline of 4.9%, its steepest drop in nearly a decade. Even the services sector, which often records consistent and reliable growth, all-but stalled during the latter half of last year.
One of the biggest reasons for the decline in the car industry, and across the UK economy in general, is a decline in business investment. According to ONS figures, overall business investment fell by around 1.4% during Q4 2018. Gross fixed capital formation (investment in tangibles, such as stock and equipment) fell by 0.5% during Q4 and remained flat for the year, whilst in the UK car industry, inward investment for 2018 was down almost half compared to 2017.
Much of this is, once again, down to the prolonged Brexit negotiations. After reaching a withdrawal agreement in November 2018, the UK Government has been unable to pass it in Parliament. This means the UK could leave the EU without an agreed deal in March, the ‘no-deal’ scenario feared by businesses. As the months have ticked on without the UK Government passing an agreement, major companies have become increasingly wary of the ramifications that could face the UK economy. This has caused many businesses to either hold-off on national business investments, or redirect their investments to other EU nations, a primary cause for the slowdown in GDP growth through Q4.
What Will 2019 Hold for the UK Economy?
A further issue facing British business going forward is the impending global economic slowdown. Many analysts expect that the global economy, fuelled by disappointing results in China, will begin to see a decline in growth, especially through the first half of 2019. This will only compound some of the effects being felt nationally by the UK’s major firms and is playing a significant role in business decisions, as companies consider the potential downturns facing the UK economy.
According to the Bank of England, there is a one-in-four chance that the UK could fall into a recession during the second half of 2019. A recession is likely to only occur in the scenario where the UK leaves the European Union without agreeing on a deal, coupled with a stronger global slowdown than many predict.
On the other hand, some analysts expect the UK economy to grow stronger than predicted during the second half of the year. Again, much of this is reliant on Brexit negotiations. It is believed that many businesses are waiting to make investments after an agreement is reached between the UK and the EU and that once a deal is made, a rush of business spending will occur. If this proves to be true, then UK growth could increase during 2019.
Regardless of estimates and predictions, it is generally expected that the UK economy will continue to struggle during the first two quarters of 2019. With Brexit as unpredictable as ever, many businesses have now begun to prepare for more economic difficulties throughout the year by strengthening their supply chains.
Procurement companies like ERA can help prepare your business for the uncertain UK market going forward. We have been working with major UK businesses for over 20 years, helping them to refine their procurement strategies. Our experts specialise in cost sectors such as packaging, distribution and utilities, and will work with your business to streamline your long-term supply chains. If you are looking to cut down your costs and improve your profit margins heading into an unpredictable 2019, then why not speak to our team today and see what savings we could make for your business?