UK: Brexit still weighing, but economy to avoid Q1 stall – RBC

UK GDP rebounded nicely to start 2019, after a sharp slowing in December as manufacturing, construction, and services output all increased in January to retrace the previous month’s declines, explains the analysis team at Royal Bank of Canada.

Key Quotes

“The monthly data can be volatile, but this latest reading will help allay fears that the UK economy is grinding to a halt amid Brexit uncertainty. Still, survey data point to Brexit continuing to weigh on business sentiment. The UK’s composite PMI rebounded somewhat after hitting a multi-year low in January, but the manufacturing sector has been flattered by stock-building (ahead of potential border delays) and service-producers cited risk averse clients as a factor weighing on new orders.”

“On balance, our forecast assumes we’ll see another quarter of subtrend 0.2% growth to start this year. Households and businesses looking for clarity on Brexit have been left wanting. Parliament once again voted down Prime Minister May’s deal, instead opting to ask the EU for an extension to the March 29 deadline.”

“That extension could be just a few months if Parliament can decide on a deal by March 20 (PM May’s will be voted on for a third time before then). Or it could be a longer delay that keeps the UK in the EU through the end of this year. That would leave the door open to a number of other scenarios, including fresh elections or a second referendum.”