The UK economy grew at the slowest annual rate in nearly a decade in the third quarter as uncertainty over Brexit continued to weigh on business.
The economy expanded by 1% in the three months ended September, compared to the previous year, according to data from the Office for National Statistics. It’s the weakest annual growth rate since the beginning of 2010.
The country managed to dodge a recession, with quarterly growth rebounding to 0.3% after a negative reading in the second quarter. But that’s not much of a silver lining for a government that faces a general election in a month’s time. And the data show an economy in distress.
Years of confusion over Brexit have taken a toll on investment and productivity, leading some economists to call for more stimulus from Britain’s central bank.
“Unless Brexit uncertainty fades and a fiscal boost is forthcoming, then this might make the Bank of England more inclined to cut interest rates before long,” said Ruth Gregory, senior UK economist at Capital Economics.
Manufacturing was flat over the third quarter, while the trade deficit narrowed on growing exports of goods and services, according to the ONS. But Gregory said the only real strength was increased household spending.
“With the election just under five weeks’ away, clearly this isn’t the good news the government might have hoped for,” said Gregory.
Brexit damage done
The looming general election is the third in four years, and it marks an attempt to break a Brexit deadlock in parliament that has weighed heavily on business and investment activity.
But the outcome is far from certain, and some worry that the vote will only plunge the country’s political system deeper into chaos while extending uncertainty over how Britain will trade in the future.
Moody’s said Friday that regardless of how Brexit is settled, the United Kingdom’s “economic and fiscal strength are likely to be weaker going forward and more susceptible to shocks than previously assumed.”
The ratings agency warned that it could soon downgrade its rating on UK government debt.
Moody’s said the “Brexit-era policymaking process” has been characterized by “inertia and, at times, paralysis” and done lasting damage to UK institutions.
For Berenberg senior economist Kallum Pickering, a victory for Prime Minister Boris Johnson’s Conservative Party would deliver the best chance of a sustained economic recovery.
A Conservative victory “would put the UK on the path to an orderly Brexit on 31 January 2020” and prevent Labour Party leader Jeremy Corbyn from undertaking a dramatic overhaul of the UK economy, Pickering said in a note.
UK households are in good shape, he added. “If political risks can fade a little, household spending can underpin a healthy rebound in domestic demand,” Pickering said.