Brexit’s toll: U.K. economy at weakest since financial crisis

Amid mounting uncertainty over Brexit, the British economy slowed last year to its weakest growth rate since 2012 in the aftermath of the global financial crisis, official figures released Monday show.

The Office for National Statistics said the British economy grew by only 0.2 per cent during the fourth quarter, down from the 0.6 per cent tick recorded in the previous three-month period. Output actually fell in the month of December by 0.4 per cent from the month before.

Over 2018 as a whole, the economy grew by 1.4 per cent, its lowest rate since 2009, when it contracted by 4.2 per cent in the wake of the global financial crisis that had brought much of the world’s banking system to its knees.

Last week, the Bank of England chopped its forecast for growth this year by 0.5 percentage points to 1.2 per cent, which would be the weakest year since the 2009 recession. 

Statisticians did not directly blame Brexit for the slowdown but there is plenty of evidence showing that the uncertainties relating to the country’s departure from the European Union are weighing heavily on economic activity, particularly business investment. Firms have no clear idea of what the country’s trading relationship with the EU will look like after the scheduled Brexit date of March 29.

The statistics agency’s head of GDP figures, Rob Kent-Smith, said the slowdown in the last three months of the year was particularly “steep” in car manufacturing and steel production, offset by continued growth in the services sector, which makes up around 80 per cent of the British economy.

The British economy largely held up better than expected in the immediate aftermath of the vote to leave the European Union in June 2016.

‘Fog of Brexit’

However, as Brexit day draws nearer, firms are getting edgy. There is no sign that the uncertainty, described as the “fog of Brexit” by the Bank of England, is going to lift anytime soon.

Prime Minister Theresa May is struggling to salvage the Brexit deal she agreed on with the EU late last year after it was overwhelmingly rejected by British lawmakers. She’s trying to eke out concessions from the EU, particularly on a controversial provision intended to make sure no hard border returns between EU member Ireland and Northern Ireland, which is part of the United Kingdom.

It’s unclear she will be able to get any concessions and fears have grown in recent weeks that Britain could crash out of the EU without a deal, a worst-case scenario that the Bank of England has previously said could see the British economy shrink by 8 per cent within months and house prices collapse by around a third.

The economic slowdown should not be blamed entirely on Brexit, British Trade Minister Liam Fox said on Monday.

“Clearly there are those who believe that Brexit is the only economic factor applying to the U.K. economy. I think you’ll find that the predicted slowdown in a number of European economies is not disconnected from the slowdown, for example, in China,” Fox told a news conference in the Swiss capital of Bern.

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