Household consumption rose by 0.4 percent in Q4, the same pace as in Q3 and broadly in line with the subdued quarterly growth rate experienced over 2017 and 2018. The relatively muted growth in household consumption was also noted in the latest Bank of England Agents’ Summary of Business Conditions, which noted that “uncertainty related to Brexit and subdued housing market activity weighed on demand”. It also reported that there had been evidence that Black Friday sales had failed to meet expectations, though some of this may have reflected that less spending had been brought forward from December. The GfK Consumer Confidence figures in December found that consumers were much less confident at the end of the year, with its reading at its lowest for more than five years. Government consumption advanced by 1.4 percent in Q4 (vs -0.3 percent in Q3), primarily reflecting an increase across general public services and defence spending.
By contrast, gross fixed capital formation fell by 0.5 percent in the final three months of 2018, compared to 0.6 percent growth in Q3. There were continued falls in investment in transport equipment in Q4, although these estimates can be volatile. Early estimates of business investment show it fell by 1.4 percent in the final quarter of the year. This is the fourth consecutive quarter in which such capital expenditure has fallen, the first such instance since 2009. In the latest Inflation Report, the Bank of England observe that this weakness appears to “primarily reflect Brexit and associated uncertainty”. In addition, net trade made a negative contribution to GDP growth in the last three months of 2018, as the 0.9 percent rise in exports (vs 0.2 percent in Q3) was more than offset by the 1.3 percent increase in imports (vs unchanged in Q3). This included a 0.9 percent fall in exports of goods amid a slowdown in the export of manufactured goods. This is said to have reflected “a combination of a waning boost from sterling’s 2016 depreciation and weaker demand for diesel cars, rail and marine goods”.
On the production side, there has been a slight easing in services output growth to 0.4 percent (vs 0.5 percent in Q2), following a relatively strong performance throughout the summer months. Production output fell by 1.1 percent (vs 0.6 percent in Q3), its largest decline since Q4 2012, including a 0.9 percent fall in manufacturing output on the back of steep falls in cars and steel products output. Following two consecutive quarters of growth, construction output fell by 0.3 percent in Q4.
Compared with the same quarter in the previous year, the economy expanded by 1.3 percent. It has not been weaker since Q2 2012 and continues its relatively subdued performance over the last year. Considering 2018 full year, UK GDP increased by 1.4 percent, the weakest it has been since 2009.