Market Overview

UK GDP: Economy Avoids Recession Despite Weak Growth

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UK GDP: Economy Avoids Recession Despite Weak Growth

The United Kingdom's economy is growing at its slowest annual rate in almost a decade.

The U.K.'s year-over-year growth in the three month period ended in September slowed from 1.3% to to 1%, the Office for National Statistics said.

The economy avoided a recession by growing 0.3% in the third quarter. The economy had shrunk in the second quarter, and two quarters of contraction would have signaled a recession.

"Looking at the picture over the last year, growth slowed to its lowest rate in almost a decade," the ONS said. 

The U.K. may have ducked a recession, but it's seeing it's weakest growth in a decade and may struggle to expand if the rest of the global economy is slowing, said Artur Baluszynski, head of research at Henderson Rowe.

"After a strong July and August, September was weaker."

Baluszynski says he expects next quarter to remain modest, despite the seasonal boost, as trade tensions and political uncertainty are set to continue.

Brexit Delays Mean Uncertain Investment Environment

The economic data is not particularly surprising, and that's why the sterling "barely reacted with a shrug," said Andy Scott, associate director at JCRA.

"The continual delay to the Brexit process means the U.K. remains an uncertain environment to invest in for businesses, which results in slower growth."

A U.K. general election is scheduled for the fourth-quarter and brings the risk of either a hung Parliament or a socialist Labour party forming a coalition government, pointing to a further deceleration or stagnation as the year draws to a close, Scott said. 

While the fog of Brexit hangs in the air, the clouds over the economy continue to darken, he said. 

"[The] sterling meanwhile has taken the decision to have an early general election and the news that two Bank of England members voted for a rate cut last week largely in its stride. Sterling is currently trading at 1.28 versus the Dollar, down only 2 cents from a five-month high reached last month, while it is trading at 1.16 versus the Euro, less than half a cent from its recent highs." 

Price Action

The iShares MSCI United Kingdom Index (NYSE: EWU) was down 0.18% at the time of publication Monday, while the Vanguard FTSE Europe ETF (NYSE: VGK) was down 0.2%.

Related Links:

Eurozone Slowdown: Weak October Data Shows Stagnation

UK PM Johnson Battles To Push Brexit Deal Through

Posted-In: Andy Scott Artur Baluszynski Brexit Henderson Rowe JCRANews Global Economics Best of Benzinga

 

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