Weakening British Economy, Tumbling Sterling And Jolting Industries!

  • Feb 14, 2019 GMT
  • Team Kalkine
Weakening British Economy, Tumbling Sterling And Jolting Industries!

The UK’s largest self-resilient producer of national statistics, Office for National Statistics (ONS) revealed full-year and quarterly GDP growth rate figures on 11th Feb 2018. As per the official data revealed, the British economy showed its worst performance in 2018 since the financial crisis hit the global economies.

The GDP in the fourth quarter of CY2018, grew 0.2 per cent compared to 0.6 per cent in the third quarter of CY2018. British economy contracted 0.4 per cent in the fourth quarter ended on 31st, December 2018. On year on year basis GDP grew 1.4% in CY2018. The UK’s GDP stood at $2.80 trillion (nominal, 2018), the fifth largest economy in the world.

Full-year quarterly GDP growth rate

In the first quarter of CY2018, British economy grew by 0.1 per cent; 0.4 per cent in the second quarter; 0.6 per cent in the third quarter and in the fourth quarter by 0.2 per cent respectively.

Above data exhibits that, the UK’s economy had strengthened during the second and third quarter of 2018. From fourth quarter onwards, the economy has started contracting due to the failure of British lawmakers to get a deal done on Brexit and Irish border issues. Global uncertainties have led to muted investment from investors, jobs cuts, and weak production during the fourth quarter of 2018. Businesses impacted severely because of no formal agreement has been decided between EU and Britain post Brexit.

The slowdown in the British economy resulted in bleak production, relocation of headquarters of businesses, a higher premium on British bonds, relocation of automotive vehicle production and weakening sterling in the fourth quarter of CY2018. Such concerns will harm all global economies.

Lately, Mr Mark Carley, Chairman of Bank of England, forecasted for another slowdown in 2019 and increased chances of the economy slipping into recession by the mid of 2019.

Tumbling Sterling

On Monday, Pounds weakened again after ONS revealed GDP data for the fourth quarter of CY2018. Softening investment and slowdown in the economy pushing pounds lower against US Dollars. Sterling slid to a fresh three-week low overnight, extending the losses it experienced after data revealed weak GDP growth in quarter four of 2018.

Also, Brexit chaos on the contentious Irish backstop, with the British Prime Minister trying her level best to rule out hard divorce scenario, continues to weigh on the pound.

Jolting Businesses

Last week in a meeting scheduled between the Department of International Trade (DIT) and British tradesman in which department conveyed that Britain could fail to complete a trade deal with most of the non-EU countries by the Brexit day.      Theresa May government said to tradesman that the government could not guarantee that the UK economy will be fully covered under the umbrella of EU’s global trade agreement immediately post Brexit occurred.

Recently, Japanese carmaker Nissan shifted its location for the production of its new X-Trial series cars from Sunder Land, UK plant to its home country due to disorderly Brexit or no-deal divorce with EU.

On the other hand, lending costs of the UK’s financial institutions have risen significantly, and it's hampering the margins of the financial institutions. Investors are demanding a higher premium on the bonds floated by the banking institution to raise money to lend. Investors are demanding a higher premium on the NCDs issued by blue-chip banks, then what about the small banks, their margins will shrink considerably in coming quarterly results.

As it was evident that if lending costs increases within an economy, it affects everyone dealing within the economy, it will hit considerably to capital expenditure industries and debt-driven businesses.

With Bank of England reducing the interest rates to a historic low level, the spotlight is back on diverse investment opportunities. 

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