April 15, 2019 / 6:05 AM / 6 days ago

UK economy leans on consumers as Brexit drags on business

LONDON (Reuters) - Moving slowly in the fog of Brexit and slowing global growth, Britain’s economy is increasingly reliant on consumers and their spending as business investment and exports fade.

FILE PHOTO: A river boat cruises down the River Thames as the sun sets behind the Canary Wharf financial district of London, Britain, December 7, 2018. REUTERS/Simon Dawson

The world’s fifth-biggest economy grew 1.4 percent in 2018, the weakest increase in six years, and it looks set to slow further in 2019.

On Wednesday, the European Union delayed Britain’s departure from the bloc until the end of October, but scepticism runs high that lawmakers in London can form a consensus over Brexit.

Below are charts that highlight some of the most notable features of Britain’s economy in early 2019.

CONSUMER SPENDING: HOLDING UP

Household spending grew by the least since 2012 last year. Some of the slowdown was a by-product of the June 2016 Brexit vote, which hammered the value of the pound and pushed up inflation above wage growth through most of 2017.

But pay growth has rebounded in recent months, helping to support consumer spending.

In late 2018, households and the government were the only drivers of Britain’s weak economy. Business investment and net trade dragged on growth.

Bank of England Governor Mark Carney said the world economy was suffering some of the same problems. “Normally when expansions are reliant on the consumer, you start watching the clock, in terms of how much longer it will last,” he said.

Graphic: UK consumer spending: still solid, click tmsnrt.rs/2D4Tan9

INVESTMENT? WHAT INVESTMENT?

Businesses have held back on plans for investment ever since it became clear that Britain was going to hold a referendum on its membership of the EU.

The value of business investment lost in Britain’s economy since the June 2016 referendum is roughly 10 billion pounds compared with its simple trend growth from late 2009 to the second quarter of 2016.

Graphic: UK business investment flatlines after Brexit vote, click tmsnrt.rs/2D1Ctcs

STOCKPILING

The extent of stockpiling going on among British manufacturers looks likely to limit the extent of any potential rebound in investment.

A survey earlier this month showed manufacturers upped their stocks of materials and parts at a pace never before seen in a Group of Seven advanced economy.

Official data has suggested stockpiling had boosted factories in February, although by how much was unclear.

Economists worry that the recent drive to build inventories has brought forward output, heralding a downturn later.

Graphic: UK factories stockpile at fastest rate in history of G7 PMIs, click tmsnrt.rs/2IcsBkr

WILL CONSUMERS KEEP SPENDING?

Public confidence in the economic outlook is weaker in Britain than in any other EU country, according to European Commission data.

Thus far, this has not had a big impact on consumer spending as households’ budgets have benefited from faster wage growth. But it suggests there is a risk that Britons could tighten their belts if the recovery in pay falters.

Graphic: Confidence in UK economy slides, click tmsnrt.rs/2I6OyRO

WHAT WILL THE BANK OF ENGLAND DO?

The Bank of England has long signaled that it thinks interest rates should rise in a limited and gradual way, as long as Brexit progresses smoothly.

But with the uncertainty set to last for several more months, the BoE is likely to sit tight, especially with indicators such as the IHS Markit/CIPS purchasing managers' index - historically a good marker for interest rate moves - a long way from levels typically consistent with a rate hike. Graphic: UK economy stalling ahead of Brexit - PMI, click tmsnrt.rs/2D0y4q4

The BoE’s nine rate-setters might want to avoid adding to economic uncertainty by giving different views on the outlook for borrowing costs.

A survey from the BoE showed a record proportion of Britons - more than a quarter - had no idea where rates were heading.

Graphic: Record share of UK public have no idea where interest rates are heading, click tmsnrt.rs/2IeGgap

Reporting by Andy Bruce; Editing by William Schomberg

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