UK economy loses steam in 3Q as battle over Brexit rages

LONDON • The UK economy lost momentum in the three months through October, a further sign of the toll being taken by Brexit uncertainty.

Growth slowed to 0.4% from 0.6% in the third quarter (3Q), the Office for National Statistics (ONS) said yesterday. In October alone, growth was just 0.1%, with the economy being spared a third month of stagnation by a rebound in the dominant services industry.

A heatwave-induced surge in the early summer proved short-lived. Fears about a no-deal Brexit are weighing on confidence in the final quarter, as shown by recent Purchasing Managers’ surveys.

Growth slowed across all key sectors of the economy from the quarter though September. Annualised growth was 1.4%. The figures come a day before a crucial vote in Parliament.

Lawmakers are expected to reject the deal Prime Minister Theresa May negotiated with the European Union, potentially putting Britain on a path out of bloc with no deal on March 29.

Markets see the Bank of England refraining from interest-rate increases for another year at least. But the inflation shock from a chaotic Brexit may make it hard to loosen monetary policy to aid the economy, as officials did after the 2016 referendum.

Despite the fall in the pound since the referendum, the contribution to growth from trade has been disappointing. In October, the deficit in goods widened.

Revisions to the 3Q showed the deficit in goods and services widening to £9.8 billion (RM51.7 billion), wiping out any contribution from trade to growth. The deficit was previously estimated to have narrowed to £2.9 billion.

Manufacturing shrank 0.9% in October, with eight of 13 sectors posting declines. Motor vehicle output fell 6.6% amid demand-induced shutdowns. Overall industrial production fell 0.6% and the annual decline of 0.8% was the most since 2016.

Services gained 0.2%, the first increase since July, boosted by accountancy and audit and software programming. Motor trades, which were hit by new European Union emissions standards in September, also rose as activity was displaced to October.

Construction shrank 0.2%. Imports rose 3.5%, but the ONS said import growth is no higher than the 12-month average, suggesting there is little evidence in the trade figures of companies stockpiling in anticipation of a chaotic Brexit. — Bloomberg