UK economy starting 2020 in ‘stagnation’ and uncertainty, British Chambers of Commerce warn

The UK has entered 2020 with its economy in “stagnation”, amid long-term uncertainty and rising business costs, according to a new report.

The British Chambers of Commerce (BCC) said its research suggested “protracted weakness” across the economy, affecting firms in manufacturing and services.

And the group warned that Boris Johnson’s government must move quickly to ensure that its Brexit plan delivers “a clear future trading relationship” with the EU in order to strengthen the prospects of restored business investment and growth.

BCC director-general Dr Adam Marshall said the government must use its majority from last month’s election to “take big decisions to stimulate growth”, bringing forward infrastructure spending, reducing business costs, supporting training and ensuring certainty on the future of trade with former EU partners.

Mr Johnson has revived business fears of a no-deal Brexit by ruling out any extension of talks on a future trade deal with the EU beyond the end of this year.

The deadline is regarded as extremely tight by experts, and failure to meet it would mean the UK crashing out on unfavourable World Trade Organisation terms.

The BCC’s survey of more than 6,400 businesses, covering the final quarter of 2019, highlighted a worsening picture in the services sector, which accounts for almost 80 per cent of economic output.

All of the sector’s key indicators worsened compared to the previous quarter, remaining well below their historic average. And the balance of manufacturers reporting a rise in export and domestic orders was negative for the second consecutive quarter – the first time this has happened since 2009 and 2011 respectively.

Investment plans remain weak by historic standards, with the balance of manufacturers planning to increase investment in plant and machinery dropping to its lowest level since 2011. Meanwhile, cash flow has only improved slightly from its lowest level in eight years and remains “very weak” across both manufacturing and service sectors, said the BCC.

Suren Thiru, head of economics at the BCC, said: “The UK economy limped through the final quarter of 2019.

“The fourth quarter was characterised by a broad-based slowdown in the dominant services sector with all key indicators weakening in the quarter, amid sluggish household expenditure and crippling cost pressures.

“Despite some improvements, indicators in the manufacturing sector remain very weak by historic standards and, with indicators for domestic and export orders continuing to contract, the near-term outlook for the sector remains challenging.

“A faltering service sector together with listless manufacturing activity points to a downbeat outturn for UK GDP growth in the fourth quarter of 2019.”

Dr Adam Marshall said: “The end of political deadlock at Westminster must also bring action to renew business confidence and tackle the prolonged stagnation that’s affecting so much of the UK economy. The government must use its newfound majority to take big decisions to stimulate growth.

“If ministers take action to reduce up-front costs, move key infrastructure projects forward, and to help businesses on training, they’ll be rewarded with increased investment.

“However, they also must move quickly over the coming weeks to ensure that Brexit is done right. A clear future trading relationship with the EU is also crucial to many firms’ future investment and growth prospects.”

Responding to the report, a Treasury spokesperson said: “Our economy has been held back by Brexit uncertainty for too long. We are getting Brexit done so we can move on and open a new chapter for our economy.”

But shadow chancellor John McDonnell said: "This survey confirms - exactly as the vast majority of economists predicted in 2010 - that the Tory economic strategy of austerity and lack of investment would result in a lost decade.

“It’s not just the uncertainty caused by the government's negotiations with the EU undermining our economy but 10 years of failed and discredited Tory economic policies."

EU trade commissioner Phil Hogan has dismissed as a “stunt” Mr Johnson’s refusal to extend the post-Brexit transition period – during which trading relations will remain unchanged – beyond the end of 2020.

A clause outlawing any extension has been inserted into the Withdrawal Agreement Bill, due to be debated by MPs next week and certain to pass by the end of the month given the huge Conservative election victory.

But Mr Hogan earlier this week described the clause as “very odd indeed”. He added: “From our point of view it is important that we move from stunt to substance. It would be helpful if the focus was on content rather than timetables.”

The jibes set the scene for the punishing talks to come after the UK formally leaves the EU on 31 January – but with the crucial future trading relationship undecided.