UK economic growth eased to just 0.2% in the final quarter of 2018, as construction, services and production – the three drivers of a healthy economy – contracted in December with the brakes applied to car manufacturing.
Philip Hammond admitted uncertainty around what will happen on 29 March is overshadowing the economy.
But hours after Mr Hammond sought to reassure businesses that a deal to leave the European Union would be done soon, the EU’s chief Brexit negotiator Michel Barnier warned that “something has to give” on the British side.
The chancellor told Sky News: “It’s a solid performance from the economy when you look at what’s happening globally and in other competitor countries.
“But of course there is no doubt that our economy is being overshadowed by the uncertainty created by the Brexit process and the sooner we can resolve that the better and the quicker we can get back to more robust growth in the future.
“I am very confident that over the next few weeks we will be in a position to move forward and remove this uncertainty and allow people to get on with their lives.”
Mr Hammond accepted that the timing of the continuing discussions was not ideal, but remained “confident” in negotiations.
He added: “Everybody hoped we would be able to resolve this much earlier on in the process but it is in the nature of these kind of political negotiations that they tend to go to the wire and I’m afraid this has gone on longer than we would have liked – we would have liked to have been able to banked this at the end of last year.
“I’m confident we can get this done and that’s what businesses need to hear.”
Brexit Secretary Stephen Barclay met with Mr Barnier in what was the first European negotiating trip for the latest Brexit secretary, as Prime Minister Theresa May has led the majority herself.
In a statement after the meeting, the pair said their talks were “constructive” and they agreed to further discussions in the coming days.
Meanwhile, Liam Fox, the International Trade Secretary, has signed a new trade deal with Switzerland, as his department admitted that not all the treaties Britain has with European nations will be rewritten and signed before the end of March.
Instead of aiming to renegotiate all the treaties, the government is focusing on securing those deals that are worth most to the British economy.
It is understood that the target is now to have deals in place that would cover “around 90%” of British trade within the existing agreements.
Earlier today, the Office for National Statistics (ONS) released preliminary figures representing a significant slowdown on the 0.6% achieved between July and September but was in line with economists’ forecasts.
It meant that, subject to revisions, the economy grew by 1.4% over the 12 months – its weakest performance since 2012.
The pound fell below $1.29 following the data release – a fall of almost a cent – as investors digested the damage from Brexit uncertainty and the wider headwinds in the global economy linked to the US trade war with China.
Of the greatest concern will be a contraction for December alone of 0.4%.
The ONS said steep declines in the production of steel, new cars and in the construction sector drove the fourth quarter performance, though household spending proved resilient – up 0.4% on the previous quarter and 1.9% on a year ago despite a tough Christmas for the high street.
Rob Kent-Smith, its head of GDP (gross domestic product), said: “GDP slowed in the last three months of the year with the manufacturing of cars and steel products seeing steep falls and construction also declining.
“However, services continued to grow with the health sector, management consultants and IT all doing well.
“Declines were seen across the economy in December, but single month data can be volatile meaning quarterly figures often give a better indication of the health of the economy.
“The UK’s trade deficit widened slightly in the last three months of the year, while business investment again declined, now for the fourth quarter in a row.”
Business investment was down 3.7% between October and December compared to the same period a year ago.
That represented the biggest fall since 2010.
The ONS measured car production 4.9% down – its biggest decline since the first quarter of 2009 as the industry battles Brexit uncertainty, weaker demand domestically and abroad and a crackdown on diesel.
Overall production output was 1.1% lower while construction dipped by 0.3%.
Tej Parikh, senior economist at the Institute of Directors, said: “The UK economy lost its summer exuberance in the final months of 2018, and there are signs of further chill winds ahead.
“The ongoing uncertainty around what happens after 29 March is the prime suspect behind sapped economic activity.
“There is currently a drag on growth as some businesses are forced to hold back on major investments and engage in cautionary stockpiling.
“The first half of 2019 will bring further challenges for the UK economy. China’s slowdown and weak growth in Europe are likely to bite at British exporters.
“At the same time, while consumers have shown resilience so far, many are becoming increasingly cautious with their wallets.
“The clock is ticking but if a Brexit deal can be agreed, things should start to look sunnier as pent-up demand is released and firms begin investing again.”
Neil Wilson, chief market analyst at Markets.com, said of the figures: “We must caution against blaming all on Brexit – global cooling is having the biggest dampening effect on all major economies at present – although we must note that business investment is collapsing (-1.4%, the fourth straight quarter of decline), and this has to be attributed to the current uncertainty.”