Manufacturing slump puts UK economy into reverse as Brexit looms

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Manufacturing of cars and steel products has dropped in the UK.

GDP contracts by 0.4% in December in weakest year for growth since 2012

The British economy plunged into reverse in December, with a broad-based slump in economic output completing the weakest year for growth since 2012.

The Office for National Statistics said gross domestic product contracted by 0.4% from the previous month, fuelled by a fall in spending on the high street over the key festive shopping period.

With less than 50 days to go before Brexit, the figures showed all three drivers of growth in the British economy – services, production and construction – shrank during December.

The decline in monthly output helped drag down quarter-on-quarter growth to a rate of 0.2% in the three months to the end of the year, slightly below the Bank of England’s expectations and down from a rate of 0.6% in the third quarter.

Economists tend to focus on the three-month figures, as monthly GDP snapshots can be prone to revision, but the scale of the decline in December is likely to be seen as a sign of the economy losing momentum as Brexit draws nearer.

For 2018 as a whole, GDP growth slipped to its lowest since 2012, at 1.4%, down from 1.8% in 2017.

Despite the broad-based slowdown, Philip Hammond, the chancellor, said the latest figures showed that Britain’s economy remained fundamentally strong.

“The UK is currently enjoying the longest unbroken quarterly growth streak of any G7 nation,” he said.

However, the latest monthly figures revealed that manufacturing output tumbled into recession territory with the sixth consecutive month of falling output. This marked the longest negative run since September 2008 to February 2009, the depths of the financial crisis.

Labour and the trade unions called on the government to take the threat of a no-deal Brexit off the table in order to instil more confidence in the manufacturing sector.

Frances O’Grady, the general secretary of the TUC, said: “The prime minister’s failure to rule out a no-deal Brexit is harming confidence in the economy and holding back growth.

“With our manufacturing sector in recession, the prime minister must act now to remove the threat of crashing out.”

Manufacturing of cars and steel products dropped. Exports suffered from weak global demand, while domestic activity was constrained by the political impasse over Brexit in Westminster.

Britain has not been immune from faltering growth in the world economy over recent months, amid a slowdown in demand in China and as trade tensions escalate between Washington and Beijing. Growth in the eurozone has slumped, with Italy falling into a recession in the second half of last year while Germany also teeters on the brink.

Car sales in China fell for the first time in almost 30 years, while new vehicle emissions tests introduced in the wake of the VW emissions scandal have disrupted factory output across Europe.

The ONS data showed that net trade cut more than 0.1 percentage points from the UK’s fourth-quarter growth, while the trade deficit – the gap between exports and imports – widened slightly in the final three months of the year.

Despite the wider global slump, Britain however faces unique challenges from Brexit that are escalating just as the world economy falters.

The latest ONS figures revealed that business investment fell for the fourth quarter in a row – in a first since the last recession in 2009 – as the lack of clarity over Britain’s future trading relationship with the EU led companies to pause their investment plans.

Yael Selfin, the chief economist at the accountancy firm KPMG, said: “It is particularly worrying to see business investment contracting significantly again, as it will impact the UK’s longer-term productive capacity as well as productivity performance, and points at a low vote of confidence from business in the UK’s future.”