The “one-off action” of British manufacturing sector to support the economy took place in the first quarter, showed data on Friday. Firms have accelerated the shipment of finished products, expecting that after Brexit conditions for this will be less favourable. The data helped the pound to defend the level of 1.30, however, the call to increase longs on British currency was quite low-key.
GDP grew in line with the Bank of England forecast and market consensus of 0.5% in the first quarter. In annual terms, GDP growth also tallied with expectations (1.8%) and accelerated compared to the last quarter of 2018 (1.4%). For the British economy, this was the best quarter since mid-2017.
Deliveries of products spurred the former “hard” deadline for Britain’s exit from the EU on March 29. With the economy slowing down, it is difficult to come up with a benchmark of action for British firms better than this.
The latest PMI reports showed that firms are also accumulating stocks fearing that the country will leave the block according to the worst-case scenario (hard Brexit), that is, without a bilateral trade deal with access to the single EU market. However, official statistics disproved this assumption by showing that inventories added just 0.7% to GDP gain. Data for some firms, such as wholesale and warehouse services, also did not find confirmation of this at all.
The trade balance made a negative contribution to GDP (-2.2%) due to a bias towards imports. British goods did not find external demand in the first quarter, exports did not change against expectations of growth of 1.7%
Companies were focusing on the March 29 deadline, since the decision to put off the deadline, thanks to the efforts of Prime Minister May, was made a few days before the deadline. Now the estimated Brexit date is October 31, and this “respite” could ease the rush of companies in the second quarter.
Mark Carney, the head of the Bank of England, said last week that the Central Bank expects a slowdown in growth to 0.2%, because accumulation of inventories will slow down, and firms will not rush to invest until the situation around Brexit becomes clearer. Data published today showed that the Central Bank underestimated the potential of this catalyst.
The British economy was significantly undermined by the decision to leave the bloc, growth slowed from 2% in 2016 to 1.4% in 2018. The Eurozone economy also suffered from British separatist sentiments and the destruction of an established supply chain in global trade, after the start of the trade war between China and the US.