UK economy stagnating as service sector slows
The British Chambers of Commerce’s Quarterly Economic Survey reveals that the UK ended 2019 in stagnation, amid long term uncertainty, rising business costs and a slowing global economy.
The latest results of the survey – which is the largest of its kind in the UK and a leading indicator of GDP growth – found protracted weakness across most indicators of economic health in the final quarter of 2019.
The service sector, which accounts for almost 80% of UK economic output, saw all its key indicators worsen compared to Q3 2019. These indicators remain well below their historic average.
The balance of manufacturers reporting a rise in domestic and export sales improved slightly. However, the balance of manufacturers reporting increased export and domestic orders has now been negative for two consecutive quarters. This is the first time this has happened since 2009 and 2011 respectively.
Investment intentions remain weak by historic standards – the balance of firms in the manufacturing sector that plan to increase investment in plant and machinery dropped to its lowest level since Q4 2011.
Cashflow – a key indicator of the health of businesses – improved slightly from its lowest level in eight years but remains very weak across both manufacturing and service sectors.
Suren Thiru, head of economics at the British Chambers of Commerce (BCC), said: “The UK economy limped through the final quarter of 2019.
“The fourth quarter was characterised by a broad-based slowdown in the dominant services sector with all key indicators weakening in the quarter, amid sluggish household expenditure and crippling cost pressures.
“Despite some improvements, indicators in the manufacturing sector remain very weak by historic standards, and with indicators for domestic and export orders continuing to contract, the near-term outlook for the sector remains challenging.
“A faltering service sector together with listless manufacturing activity points to a downbeat outturn for UK GDP growth in the fourth quarter of 2019.”
Responding to the findings, Dr Adam Marshall, director general of the British Chambers of Commerce, added: “The end of political deadlock at Westminster must also bring action to renew business confidence and tackle the prolonged stagnation that’s affecting so much of the UK economy. The government must use its newfound majority to take big decisions to stimulate growth.
“If ministers take action to reduce up-front costs, move key infrastructure projects forward, and to help businesses on training, they’ll be rewarded with increased investment.
“However, they also must move quickly over the coming weeks to ensure that Brexit is done right. A clear future trading relationship with the EU is also crucial to many firms’ future investment and growth prospects.”
Key findings in the Q4 2019 survey:
Services sector
- The balance of firms reporting increased domestic sales fell from +15 in Q3 2019 to +11. Those reporting increased domestic orders fell from +9 to +6. Both are at their lowest level since Q1 2019
- The balance of firms reporting improved export sales dropped from +6 to +5. Those reporting increased export orders fell from +1 to 0, the lowest level since Q1 2019
- The balance of firms reporting improved cashflow fell from +5 to +2
- The balance of firms looking to increase investment in plant and machinery fell from +5 to +2 and fell from +13 to +11 for training
- The balance of firms confident that turnover and profitability will improve over the next year increased from +30 to +32 for turnover from +20 to +23 for profitability. Despite slight increase, both indicators remain well below their historic average
Manufacturing sector
- The balance of firms reporting increased domestic sales rose from 0 in Q3 2019, to +4While those reporting increased domestic orders rose from -7 to -1, it’s the first time since Q4 2011 that this indicator has been negative for two consecutive quarters.
- The balance of firms reporting improved export sales rose from +3 to +4
- The balance of firms reporting increased export orders was unchanged at -3 – the first time since Q3 2009 that this indicator has been negative for two consecutive quarters
- The balance of firms reporting improved cashflow rose from -7 to +1
- The balance of firms increasing investment in plant/machinery fell in the quarter from +7 to +5 the lowest since Q4 2011, and investment in training rose from +8 to +11
- The balance of firms confident that turnover and profitability will increase in the next 12 months rose from +25 to +27 for turnover and from +11 to +12 for profitability. This is still much lower than the post-recession average.
