Will growth fall to 0%?

The quarter is over and the results are eagerly awaited. There is not much to be gained in the round by overly focusing on GDP numbers - the statistics are so variable that revisions can do things like erase recessions a few months later (as happened in 2011).


Indeed, just this last weekend the statisticians decided that the UK economy was £32 billion bigger than they previously estimated. This is small when considering the UK but £32 billion is a lot of money - but of course is about the size on one of the Baltic States entire economies or rather closer to home only slightly smaller than that of Northern Ireland which is around £40 billion.


But statistics have their uses as a guide to the general direction of things and one thing that does happen over time series is that they do track into and our of recessions. So this month should be interesting because Q1 of 2019 was 0.5% growth which is really quite good for the UK economy.


However, there was a lot of stockpiling ahead of the non-Brexit of 29th March and so this may have brought forward some corporate and other spending. As such Q2 will be weaker almost as a given, but will it drop to 0%. One really bad aspect of Brexit is the uncertainty, even a hard Brexit does at least end the uncertainty which is causing businesses to under-invest. Although Foreign Direct Investment is holding up well, it is also dropping off from its very high level.


Investment is crucial to the UK economy, without it we continue to move towards a low-pay, low added value model more akin to Southern Europe than US or Germany. The Government can only invest so much with a high public debt already, so we need the private sector investment.


Overall, I think growth will slow to 0% or near 0% in Q2 of 2019. With Brexit likely not until Q4 at the earliest, investment will remain weak and so Q3 over the summer could also be slow, hoping that renewed stockpiling could see a winter run up in GDP - overall though from here it seems hard to predict GDP growth above 1% for 2019 which is a very poor out-turn for the current rude health of the world economy.

Investment in UK on a slight falling trend - Brexit certainty needed.

It can be hard to decipher what are the actual facts behing many statistics these days. Media which used to be seen as matters of record - like The Times and the FT - are now as partisan thanks to Brexit derangement syndrome.


A good example of this has come out over the past few days. Investment in the UK by businesses is a crucial part of the economy. For a long time UK investment has been low, thanks to huge supply of low cost workers and this has been a big driver of low UK productivity.


Now, recent surveys show that business investment in the UK will fall by 1.3% this year. As ever this is just blamed squarely on Brexit. A bigger driver, although related, it the huge fall in car production both in the UK and across the EU. Given the huge investment in car production facilities over the past 15 years had been on of the key drivers in investment growth, it is not surprising that when this turns negative it will materially impact the UK. Now, many car makers are rightly worried about just-in-time delivery under 'no-deal' terms. however, the collapse in car sales, the ruination of the diesel market and the need to invest in all electrical car production are major factors too.


Also, the FT was gleeful last week in saying how FDI was also falling (which, confusingly, also has overseas car makers in the mix - given they are both UK and overseas businesses at the same time). Except that you have to read carefully to fine that it is fallen 1% from and 18% EU share to 17%. And the UK is still the leader by a country mile. In fact, it really shows the UK is in rude health with Brexit fears being a very weak driver, if at all.


However, the overall picture is still of UK investment declining and Foreign Direct Investment declining. The uncertainty over Brexit and the political instability this has produced (thanks to the remain media establishment, like the FT!) is not helping. We might well at this stage in the cycle see a decline in Investment but to me what this shows is the Tory leaders are broadly right. 2019 needs to see a resolution of Brexit to reduce uncertainty. Once that has happened, it is likely investment will start to accelerate again subject to normal market environs (ie if there is a recession).