UK businesses gave a boost to the economy due to stockpiling goods ahead of Brexit. According to the Office for National Statistics, growth was 0.5% in the quarter, up from 0.2% in the previous three months. Stockpiling boost the UK economy, but economists warned that a slowdown appears underway, as the first signs of a disappointing March suggest.
Office for National Statistics’ figures
The latest release (10 May 2019) of the Gross Domestic Product (GDP) is the first quarterly estimate for the UK, from January until March 2019, and contains current and constant price data on the value of goods and services. The GDP growth is the main indicator of economic performance.
According to the data, the UK gross domestic product (GDP) in volume terms increased by 0.5% in Quarter 1 (Jan to Mar) 2019, having slowed to 0.2% growth in the previous quarter. As the ONS commented: “This is in line with the latest expectations from the Bank of England and slightly above those from the National Institute of Economic and Social Research.”
Compared to the same quarter a year ago, the UK GDP increased by 1.8% to Quarter 1 (Jan to Mar) 2019, up from 1.4% previously. The services growth experienced a slow down to 0.3% in the latest quarter, while the production sector grew, driven by growth of 2.2% in manufacturing output. The ONS also noted that “private consumption, government consumption and gross capital formation contributed positively, while net trade contributed negatively to GDP growth.”
In terms of trade, the trade deficit—when a country’s imports cost more than the value of its exports—widened to 3.4% of nominal GDP in Quarter 1 2019. If unspecified goods are excluded, then the deficit widened to 2.3% of nominal GDP. In general, investing also experienced a surge, as there was strong growth in government investment, while after four quarters of contraction, business investment increased by 0.5% in Quarter 1 2019.
Brexit stockpiling and consumer spending boosted the UK economy in the first quarter. The ONS said that the manufacturing sector’s growth was the result of businesses trying to deliver orders before what was assumed to be the initial Brexit deadline of 29 March. As the ONS said, pharmaceuticals was one of the sectors which experienced a noticeable growth: “There has been widespread strength across the majority of manufacturing industries in Quarter 1 2019 (Figure 5), with the most notable growth occurring in the relatively volatile pharmaceuticals sector which increased by 9.4% in the first quarter. This was mainly driven by growth in exports of pharmaceutical products, some of which was likely in anticipation of the UK’s original exit date from the European Union at the end of March 2019.”
The current survey was also similar with previous surveys in demonstrating businesses’ Brexit worries. Manufacturers stockpiled goods for Brexit in the case of a no-deal Brexit, as they were concerned that with no transition deal in place, there would have been delays at UK borders.
Due to the stockpiling of goods, there was a surge in imports which resulted in pushing the trade deficit in the first quarter to a record high. Importing cars and gold were the main goods that helped to increase imports.
Economist Dan Hanson said: “As expected, companies stockpiled and there was a wild swing in the net trade figures. But both are likely to unwind. The surprise came from consumer spending.”
Speaking to the BBC, Chancellor Philip Hammond said that the survey showed a “robust” economy: “These GDP figures this morning show again that the UK economy is performing robustly, despite the evidence of slowing global growth and the continued Brexit uncertainty at home – so it’s good news.”
But there are clouds ahead
Economists have warned that the current activity is short-lived and that Brexit will have a long-term negative impact on the British economy.
Tej Parikh, senior economist at the Institute of Directors, said: “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.In the second quarter, many firms will be keen to run down their Brexit caches, which will drag on economic growth.”
As an importer or exporter, these figures have possibly confirmed your business situation. Brexit uncertainty will continue weighing on the economy and your finances. While the economy grew more than it has for some time, these figures could possibly be temporary. The Wall Street Journal also highlighted that “prospects for the year as a whole remain muted as uncertainty over Brexit drags on.”
This is why many businesses such as yourself are getting in touch with their dedicated currency exchange broker to make arrangements and to keep up to date with the latest financial data and Brexit news. This will help you get a better sense of your finances, hedge your funds and enjoy international transfers stress-free. Universal Partners FX understands the current volatile market and can help you access the best exchange rates to boost your business’ growth.