UK economy expands on Brexit stockpiling

The Bank of England last week raised its forecast for UK economic growth this year. — Reuters pic
The Bank of England last week raised its forecast for UK economic growth this year. — Reuters pic

LONDON, May 10 — Britain’s economy grew by 0.5 per cent in the first quarter, boosted by companies stockpiling ahead of Brexit, official data showed today.

Gross domestic product expansion outpaced the 0.2 per cent seen in the final three months of 2018, the Office for National Statistics said in a statement.

The ONS added that UK manufacturing jumped 2.2 per cent in the first quarter with recent surveys showing Brexit-facing companies building inventories, said to include key car parts and medicines.

The first-quarter growth figure was meanwhile in line with market expectations.

The strong manufacturing performance offset a slowdown in services output to 0.3 per cent, the ONS data showed.

The Bank of England last week raised its forecast for UK economic growth this year, as stockpiling offsets lower business investment elsewhere ahead of Britain’s departure from the European Union.

Economic activity was given a temporary boost as companies rushed to build up stocks of components and goods before the original March 29 Brexit deadline, the BoE said.

The central bank predicts British GDP expansion of 1.5 per cent this year, up from its previous growth estimate of 1.2 per cent.

Following today’s data, the pound was little changed as first-quarter output of 0.5 per cent had been widely forecast following the recent BoE update, analysts said.

Britain is due to leave the EU by October 31 after two delays this year triggered by MPs rejecting a divorce deal Prime Minister Theresa May had struck with the bloc.

In the first quarter, “businesses purchased more goods to keep in storage in the event of a no-deal Brexit affecting supply chains and the ability for businesses to the buy goods they need for production”, the Centre for Economics and Business Research said in a note to clients today.

The Bank of England meanwhile sees the boost to growth from stockpiling as only temporary, forecasting that British GDP would slow to about 0.2 per cent output in the second quarter of this year.

Many analysts agreed with Joshua Mahony, senior market analyst at IG trading group, who said that “while manufacturing is enjoying a bullish moment, there is a strong chance that such strength could be short-term given its reliance upon Brexit stockpiling”.

Reacting to the latest GDP data, British finance minister Philip Hammond described the UK economy as “robust”.

He added: “The economy has grown for nine consecutive years, debt is falling, employment is at a record high and wages are rising at their fastest pace in over a decade.”

The Treasury said that the UK economy was forecast to grow faster than Germany, Italy and Japan in 2019. — AFP

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