British GDP growth weathers Brexit vagaries

UK economic growth has received an unexpected boost from Brexit-fuelled stockpiling of goods.

Data released Wednesday by the Office of National Statistics (ONS) showed three-monthly GDP growth up to the end of February at 0.3 percent.

GDP FIGURES BETTER THAN EXPECTED

While this is a lackluster performance, it exceeded the expectations of some economists and commentators, who had expected the severe uncertainty over the outcome of Brexit to heavily subdue growth or even lead to a decline in GDP.

“The GDP figures are better than expected. Partly helped by December GDP monthly figure being revised up,” Howard Archer, chief economic adviser at EY ITEM Club, an economics forecasting group, told Xinhua.

“The underlying performance of the economy was relatively weak but off its recent lows with the GDP rate in the three months to February at 0.3 percent, compared with the preceding three months,” Archer added.

The effects of Brexit stockpiling boosting the manufacturing sector of the economy could be seen in the February monthly GDP figure, the freshest part of the statistics released Wednesday.

“GDP growth of 0.2 percent month-on-month in February was led by manufacturing output spiking 0.9 percent month-on-month, this is a very high figure,” said Archer.

There were reports of pre-Brexit stockpiling of products by clients of some manufacturers, said Archer, with survey evidence from the purchasing managers suggesting that manufacturing activity benefited further into March from record stockpiling of inputs and finished products.

This kind of highly unusual activity in February in the GDP figure and in March in the PMI figures indicated that Brexit uncertainty was driving businesses to hedge against supply chain disruption.

Archer said: “When you compare that manufacturing figure with Europe and elsewhere in the world, it is out of kilter with what is generally happening in manufacturing sectors in most places. So you have to think there is something unusual influencing the figures, and that unusual thing is Brexit.”

The original situation was that the UK would leave on March 29, so obviously companies were stockpiling in February and March “because they were worried that a disruptive Brexit would occur”, Archer added.

BREXIT FEARS TO CONTINUE TO WEIGH ON ECONOMY

The worries over Brexit are likely to continue to weigh down the UK economy through much of the rest of the year.

Even with a resolution of Brexit, in the form of an agreed and certain decision by the UK government and the EU which is accepted by both their parliaments, there still would be a likely Brexit hit to the economy, according to Archer, as highly stimulated growth through stockpiling now would lead to lower growth later as those stockpiles are consumed.

Brexit could happen on Friday, unless an extension decision is agreed between the UK and the EU. But if Brexit does not happen then, especially should a long-term extension be agreed by both sides, stocks built up will be run down.

Archer said: “There could be an unwinding of some of that stock-building as the risk of a Brexit recede — and in that case, the growth will be hit in the second quarter of this year.”

Further out in 2019 and into 2020, Brexit would continue to weigh heavily on economic prospects.

“What happens in the second quarter is hugely dependent on what happens for Brexit,” said Archer.

“If there is a prolonged delay to Brexit, the second quarter will see some easing in uncertainty as a Cliff Edge of Brexit disappears for the time being, but you will have prolonged uncertainty with Brexit possibly going on into the year or later.”