UK economy suffers contraction ahead of Brexit

13 February 2019 3 min. read
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As the UK prepares for the culmination of a traumatic divorce from the continent, the nation’s economy has suffered a dramatic contraction. While the UK’s service economy – including management consultancies –continues to enjoy solid growth, according to the Office for National Statistics, the wider country experienced a significant slowdown during the winter of 2018, as overall growth for the year fell to its lowest since 2012.

In 2012, the UK economy grew by 1.4%. At the time, the country was recovering from slipping into a state of recession – defined as two consecutive quarters of contraction – at the start of the year, having shrunk by 0.2% in the first three months of 2012. The Office for National Statistics (ONS) said at the time that a fall in construction output was behind the surprise contraction. At the same time, wage growth had been suppressed, causing consumer confidence to crash, resulting in a sustained period of trouble for the UK’s retail sector, too, with noted high street brands such as HMV collapsing into administration in the process.

Six years later, the ONS has shown the UK’s growth has once more flat-lined at a level of 1.4%, this time due to a contraction at the end of 2018. In the process, the retail sector is floundering, HMV has once again collapsed into administration, demand in the construction sector has suffered, and wages remain substantially lower in real terms than before the Great Recession. The only thing preventing economists from suffering a severe case of déjà vu at this moment is that much worse could still be to come, with Brexit on the horizon.UK economy suffers contraction ahead of Brexit

Of the greatest concern from the ONS’ will be a contraction for December alone, with the economy shrinking by 0.4%. UK economic growth eased to just 0.2% in the final quarter of 2018, a significant slowdown on the 0.6% achieved between July and September. While this is still in line with economists' forecasts, and this is a long way from constituting a full-blown recession, with so much economic uncertainty on the cards for the rest of 2019, the UK’s economy is in a precarious position. Indeed, the last time that the economy performed any worse than this was in 2009, when it contracted by 4.2%.

Commenting on the findings, Rob Kent-Smith, the ONS’ Head of GDP, said, "GDP slowed in the last three months of the year with the manufacturing of cars and steel products seeing steep falls and construction also declining. However, services continued to grow, with the health sector, management consultants and IT all doing well.”

While the seemingly bulletproof nature of the professional services sphere might give the consulting industry cause for celebration, however, it could also serve as a grim omen for other sectors in the near future. When output falls, firms need consultants to help them restructure and cut costs. This means a spike in consulting demand has sometimes been seen as an indicator of a possible recession, with consultants often the first port of call for companies looking to turn their fortunes around.