Brexit stockpiling helps UK economy bounce back in first quarter of 2019
Experts hailed the UK economy’s “resilience” today as it rebounded in the first quarter of 2019 with growth of 0.5 per cent, according to the Office for National Statistics (ONS).
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That is more than double the low 0.2 per cent rate of quarterly expansion that capped 2018, ONS data showed today.
Meanwhile UK GDP increased 1.8 per cent from the same quarter a year ago, better than the 1.4 per cent growth recorded in the previous quarter.
“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,” the ONS said.
GDP fell 0.3 per cent in December but was followed by rises of 0.5 per cent in January and 0.2 per cent in February before a 0.1 per cent real growth contraction in March.
However, services sector growth slowed to 0.3 per cent, though UK production industries picked up, with manufacturing providing a 2.2 per cent boost.
Brexit stockpiling delivers rush of growth
The ONS said “it is difficult to unpick” the part Brexit stockpiling has played in pushing up manufacturing output, but others said it made a “sizeable contribution” to growth.
Stockpiling pushed the industry to a 13-month high in March, according to a closely-followed index.
PwC’s senior economist, Mike Jakeman, said it reflects companies’ preparations to avoid the consequences of a no-deal Brexit in time for the UK’s original 29 March departure date.
“With warehouses bulging, we now expect inventories to subtract from growth in the coming months,” he warned.
“Manufacturing output was clearly the star performer on the output side of the economy as it markedly outstripped quarter-on-quarter growth in the services sector,” added Howard Archer, chief economic adviser to the EY Item Club.
He said stockpiling "provided a major boost" to the sector.
Construction grew just one per cent while the services sector saw a slowdown to 0.3 per cent growth, though industrial production rose 1.4 per cent compared to the previous quarter.
Consumer spending grew 0.7 per cent quarter on quarter as purchasing power and a record employment rate both helped the economy.
Business spending creeps back up after Brexit uncertainty
Meanwhile business investment rose for the first time in five quarters, growing 0.5 per cent. Archer called it a “very welcome development”, but noted that it was still 1.4 per cent lower year on year due to Brexit uncertainty.
PwC’s Jakeman said the data showed the economy has offered “considerable resilience to acute political uncertainty”.
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“The return to growth in the first quarter was not because any certainty was provided by politicians,” he said.
“Instead, firms are likely to have spent more on contingency planning and perhaps decided that some investment decisions could be delayed no longer.”
GDP boost a flash in the pan?
Tej Parikh, senior economist at the Institute of Directors, warned the spur from stockpiling could mean the quarter’s growth is “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,” he said.
“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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KPMG’s chief economist, Yael Selfin, concurred, adding: “The worry is that a significant part of that was related to stockpiling activities ahead of an expected Brexit at the end of March, rather than a sign that businesses were finally moving on with their investment plans thanks to renewed confidence.
”Looking ahead, the unwinding of potential stockpiling effects in Q1 is likely to see a weaker Q2, leaving the UK economy only marginally stronger than expectations at the start of the year.”