Britain’s economy has lost momentum and might have shrunk in the second quarter of 2019, according to data that showed the double impact of Brexit and the slowdown in the global economy.Manufacturers had their worst month in more than six years and consumers increased their borrowing at the slowest pace since 2014. The value of sterling fell against the dollar and the euro after the data was published. Howard Archer, an economist with EY Item Club, a forecasting group, estimated that Britain’s economy contracted by 0.2% in the April-June period. The Bank of England last month cut its forecast for economic growth in the second quarter to zero.That largely reflected an unwinding of the rush by many factories to get ready for the original Brexit deadline which has now been delayed until October 31.
But economists said yesterday’s manufacturing purchasing managers’ index showed how hard Britain’s factories were also being hit by the slowdown in the world economy caused by the trade skirmishes between the United States and China. The overall PMI slumped to 48.0 in June from May’s 49.4, well below the average forecast in a Reuters poll of economists and its lowest reading since February 2013. Export demand fell for a third month as manufacturers around the world lost confidence. Allan Monks, an economist at JP Morgan, said the weak PMI survey challenged his view that manufacturing growth would rebound at the start of the third quarter.Separate data from the Bank of England published yesterday showed lending to British consumers — whose spending has helped the economy cope with the Brexit crisis — rose by its weakest annual pace in more than five years in May.
The BoE data also showed the weakest increase since April 2017 in net mortgage lending. Archer at EY Item Club said May’s mortgage data chimed with other figures which suggested the relief from the delay of Brexit had been limited. “Improved consumer purchasing power and robust employment growth has also recently been helpful for the housing market, but this has recently shown some signs of levelling off,” he said. Economists said they were waiting for Wednesday’s PMI of Britain’s dominant services industry to gauge the extent of the slowdown in the overall economy. Chris Hare, an economist with HSBC, said he expected only a slight pick-up which would point to anaemic underlying growth. “So, considerations about Brexit deadlines notwithstanding, we do not think that now is the time for the Bank of England to be raising rates,” he said. The BoE has stuck to its message that it expects to raise borrowing costs, assuming Britain can avoid a no-deal Brexit.
Sources and photo-credits: Gulf Times, Reuters