UK growth stagnated as virus crisis loomed
By Sean Farrell
Date: Tuesday 31 Mar 2020
(Sharecast News) - UK growth stagnated in the final quarter of 2019, putting the economy in a weak position as the coronavirus crisis loomed, official figures showed.
The economy registered zero growth in the three months to the end of December, the Office for National Statistics said, confirming its earlier estimate. The result tallied with economists' expectations.
The annual growth rate was 1.1% in the fourth quarter - the lowest since the first quarter of 2018. Household consumption registered no growth and business investment fell. Government spending ahead of Brexit helped stop activity from declining.
UK economic growth flatlined towards the end of 2019 as political paralysis over Brexit affected consumer and business confidence. Surveys in early 2020 showed signs of revival after the Conservatives' December election victory but the Covid-19 crisis has put the economy into a state of near lockdown.
"The confirmation that the economy stagnated in Q4 2019 shows that it was very weak even before the spread of the coronavirus in the UK," Ruth Gregory, senior UK economist at Capital Economics, said. "The spread of the virus [has] forced firms to tighten their belts and wide swathes of discretionary household spending to dry up."
The household savings ratio picked up to 6.2% from 5.0% but Gregory said the improved rate was still very low by past standards.
There was superficially better news for the public finances as the current account deficit narrowed sharply to its lowest since 2011. The fourth-quarter deficit of £5.6bn was 1% of output, down from £19.9bn, or 3.6% of output, in the previous quarter. But the improvement was boosted by erratic exports of non-monetary gold.
"The underlying picture on the current account was weaker than implied by the headline figure," Howard Archer, chief economic adviser to the EY Item Club, said. "The current account deficit remains a potential source of vulnerability for the UK economy - particularly if there is any major loss of investor confidence in the UK."
The government and the Bank of England have announced big fiscal and monetary measures to support the economy during the Covid-19 shutdown, including loans and grants to businesses and subsidies for workers wages.
But Gregory said the measures would not be enough to stem plunging demand and prevent a more severe impact on growth than in the financial crisis or Great Depression.
"While we assume that GDP will recover fairly quickly in the second half of 2020, it may be a few years before the economy reaches the level it would have done had the coronavirus shock not happened," Gregory said.
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