What's going on?
Data out on Tuesday showed the UK economy narrowly outpaced a contraction in the final quarter of 2019, but it’s not exactly going anywhere fast.
What does this mean?
The UK economy flatlined in the last three months of 2019, as Brexit- and election-fueled uncertainty deterred consumers from spending and businesses from investing. And while there was growth in the services sector – which accounts for 80% of the economy – it was more than offset by the decline in manufacturing. The British motor industry was hit particularly hard, with trade tensions disrupting supply chains around the world.
There might be a glimmer of hope, mind you: the economy grew by a better-than-expected 0.3% in December – the same month the Conservative Party gained a significant majority in the general election. That stat, then, suggests some of the long-standing uncertainty could be starting to lift. Just don’t get too excited: the new government still needs to strike a trade deal with the European Union before the end of the year.
Why should I care?
For markets: Remember the good old days?
The UK economy grew 1.4% in 2019 – slightly better than 2018’s 1.3% growth, but well below the 2% rate of the five years before. During its last meeting, Britain’s central bank warned it would have to cut interest rates if economic growth doesn’t pick up. That could boost British stock and bond prices, sure, but it would also hurt the country’s savers and banks.
The bigger picture: High-speed fail.
An increase in government spending helped give the UK economy a boost in 2019, and that tailwind could continue into 2020 and beyond. The government just approved a $137 billion high-speed rail project, for example – the biggest infrastructure project in Europe. It might be hoping its rail network can catch up to its European neighbors, but that could take a while: the project isn’t scheduled to be fully completed until late 2040…