Moving slowly in the fog of Brexit and slowing global growth, Britain’s economy is increasingly reliant on consumers and their spending, as business investment and exports fade.
The world’s fifth-biggest economy grew by 1.4% in 2018 – the weakest increase in six years – and it looks set to slow further in 2019.
On Wednesday, the European Union delayed Britain’s departure from the bloc until the end of October, but scepticism runs high that lawmakers in London can form a consensus over Brexit.
Below are items that highlight some of the most notable features of Britain’s economy in early 2019.
Household spending grew by the least since 2012 last year. Some of the slowdown was a by-product of the June 2016 Brexit vote, which hammered the value of the pound and pushed up inflation above wage growth through most of 2017.
However, pay growth has rebounded in recent months, helping to support consumer spending.
In late 2018, households and the government were the only drivers of Britain’s weak economy. Business investment and net trade dragged on growth.
Bank of England governor Mark Carney said that the world economy was suffering some of the same problems. “Normally, when expansions are reliant on the consumer, you start watching the clock, in terms of how much longer it will last,” Carney said.
Businesses have held back on plans for investment ever since it became clear that Britain was going to hold a referendum on its membership of the EU.
The value of business investment lost in Britain’s economy since the June 2016 referendum is roughly £10 billion (€11.54 billion), compared with its simple trend growth from late 2009 to the second quarter of 2016.
The extent of stockpiling going on among British manufacturers looks likely to limit the extent of any potential rebound in investment.
A survey earlier this month showed that manufacturers upped their stocks of materials and parts at a pace never before seen in a Group of Seven advanced economy.
Official data has suggested that stockpiling had boosted factories in February, although by how much was unclear.
Economists worry that the recent drive to build inventories has brought forward output, heralding a downturn later.
Public confidence in the economic outlook is weaker in Britain than in any other EU country, according to European Commission data.
Thus far, this has not had a big impact on consumer spending, as household budgets have benefitted from faster wage growth, but it suggests that there is a risk that Britons could tighten their belts if the recovery in pay falters.
Bank of England
The Bank of England has long signalled that it thinks that interest rates should rise in a limited and gradual way, as long as Brexit progresses smoothly.
With the uncertainty set to last for several more months, the BoE is likely to sit tight, especially with indicators such as the IHS Markit/CIPS purchasing managers’ index – historically, a good marker for interest rate moves – a long way from levels typically consistent with a rate hike.
The BoE’s nine rate-setters might want to avoid adding to economic uncertainty by giving different views on the outlook for borrowing costs.
A survey from the BoE showed that a record proportion of Britons – more than a quarter – had no idea where rates were heading.