Stockpiling Boosts U.K. Economy But Slowdown Appears Under Way

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Brexit stockpiling and consumer spending spurred the British economy in the first quarter but a disappointing March suggests that a slowdown may already be well under way.

Growth accelerated to 0.5% from 0.2% in the final three months of 2018, the Office for National Statistics said Friday. That beat the 0.4% expansion in the euro area in the first quarter.

The pickup came as companies hoarded goods and manufacturers ramped up production at the fastest pace in three decades to meet orders from customers ahead of the original March 29 deadline to leave the European Union.

Households, meanwhile, displayed continued resilience in the face of Brexit uncertainty as consumer spending rose the most in two years. Businesses unexpectedly increased investment, ending four consecutive quarters of decline.

But while factories posted another strong month in March, construction shrank as did the dominant services sector. GDP overall fell 0.1 percent from February.

The rush to guard against possible supply disruptions has seen Siemens UK buy in railway components, Unilever stock up on ice cream and supermarket Tesco increasing supplies of tinned food. Stockbuilding contributed 0.7 percentage point to growth in the first quarter, partly offsetting a record drag from net trade.

With the Brexit deadline now extended, however, factories are expected to scale back production and meet demand from unsold goods instead. Car output is also predicted to slump after producers including BMW and Peugeot parent PSA went ahead with planned shutdowns last month, despite the delay to Brexit.

What Bloomberg’s Economists Say

“As expected, companies stockpiled and there was a wild swing in the net trade figures. But both are likely to unwind. The surprise came from consumer spending.”
-- Dan Hanson, economist.
For the full REACT, click here.

Business surveys for April were subdued and the Bank of England expects overall growth to slow to just 0.2% in the second quarter, leaving officials under no pressure to raise interest rates.

Other highlights from the report:

• Consumer spending rose 0.7% in the first quarter, possibly reflecting Brexit stockpiling by households. Increased government spending also hints at stockbuilding by departments. Business investment rose 0.5%, breaking the longest slump since the financial crisis a decade ago.
• Manufacturing surged 2.2%, the most since 1988, with pharmaceuticals, food, drink and metals posting strong gains. There was “widespread evidence of manufacturers delivering orders earlier than usual,” the ONS said.
• Services grew 0.3% but an expected boost from warehousing failed to materialize.
• In March, services fell 0.1% and construction dropped 1.9%. Industrial production rose 0.7%, with manufacturing gaining 0.9%.
• Inventories (excluding the alignment adjustment) rose by 5.24 billion pounds in the quarter.
• The boost from stocks was offset by trade, as businesses fearing Brexit supply disruptions sought foreign-made components. The trade deficit widened sharply as total import volumes surged 6.8%, the most since 2006, amid demand for machinery, transport equipment and other goods. Exports failed to grow, possibly reflecting weak global demand.
• Net trade reduced GDP growth by 2.16 percentage points, the most since records began in 1955. Imports were boosted by “unspecified goods” including non-monetary gold.
• Exports of goods to non-EU countries grew just 1.6 percent but shipments to the EU jumped 7.6% as nations in the bloc also stockpiled.
• GDP grew 1.8% from the same quarter in 2018. The annualized rate was 2% compared with 3.2% in the U.S.

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