The UK’s GDP growth continues to accelerate, defying earlier predictions of a catastrophe befalling the country due to Brexit woes, sometimes disparagingly called ‘Project Fear’. Gains in manufacturing, exports, and domestic consumption are driving the latest economic expansion.
Kristian Rouz — Britain’s economy is picking up momentum despite the heightened political turmoil related to the Brexit process, as the nation’s manufacturing and exports posted gains in the first quarter of this year. The optimistic data comes in defiance of fears of a ‘no-deal’ Brexit that dominated the UK’s political agenda at the beginning of the year.
According to the Office for National Statistics (ONS), the British GDP added 0.5 percent quarter-on-quarter in 1Q19, an increase from 0.2 percent in the previous reporting period.
The UK’s manufacturing output grew 2.2 percent, its quickest pace since 1988, officials said, as rising overseas demand for UK-made manufacturing goods drove the expansion and job creation in that sector.
The ONS also said the so-called stockpiling of goods in anticipation of a no-deal Brexit on 29 March (which didn’t happen) contributed to the expansion, with the pharma industry surging 9.4 percent as a result. UK-made medicines also met rife demand from continental Europe, driving the nation’s exports as well.
“It is correct that there has been some stockpiling ahead of the possibility of a no-deal exit in March but the underlying message is one of resilience of this economy — the growth has come across all sectors: services, construction, manufacturing, production — it’s not just in one area,” Chancellor of the Exchequer Philip Hammond said. “When you look at the broader picture, what’s happening in Germany, what’s happening in the EU27, this is good solid performance for the UK economy, given the circumstances.”
Meanwhile, the UK’s imports also increased in the first quarter, slashing some percentage points off the GDP in terms of foreign trade, but also translating into positive growth in the context of consumer demand.
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The UK’s trade deficit doubled in 1Q19, from £8.9 bln to £18.3 bln, which is a negative development, given the gradual reduction of the deficit over the past few quarters. However, consumer demand remained solid amid low unemployment, rising wages, and stable consumer confidence.
“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,” Tej Parikh of the Institute of Directors, a lobbying group, said.
The UK’s economy grew 1.8 percent year-on-year, which is far stronger than the pace of economic expansion in the rest of Europe — as Germany faces a possible recession in the second half of this year, according to Eurostat.
For its part, the Bank of England (BOE) has recently raised its growth forecast for this year from 1.2 percent to 1.5 percent. This as the world economy is facing a gradual slowdown due to disruptions in international trade and lingering trade disputes between the US and China, as well as the EU — which Britain, for now, remains a part of.
The opposition Labour party criticised the Conservative cabinet in the wake of the GDP report, despite the optimistic figures. Labour MPs say work productivity remains low, while gains in wages remain scant across many sectors of the economy.
“It’s not surprising to see households and businesses protecting themselves against a potentially disastrous Tory no-deal Brexit,” Shadow Chancellor of the Exchequer John McDonnell said. “With this government increasingly resembling a business entering administration, it’s time they admitted the failure of their approach.”
Some economists say the UK’s economic growth could moderate in the second quarter. However, last quarter’s figures disproved similar allegations made in the past — suggesting rife uncertainty surrounding the Brexit process makes forecasting hardly feasible at this point.
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In the meantime, British manufacturing is chugging along, driving a rebound in economic activity across the industrial regions on the English North and Northeast — that voted Leave back in 2016. The UK is set to leave the EU sometime later this year — depending on how fast the MPs can agree on the terms of Brexit.