Why oil’s fall could save the UK from slowdown

Concerns are deepening that the U.K. economy is slowing down, following a spate of disappointing data. But help could come from an unlikely quarter: oil.

On Friday, the Office for National Statistics reported that total U.K. industrial production fell 0.1 percent on the month in November, and construction sector output slumped 2.0 percent.

Read MoreHow much you'll save this year thanks to oil's fall

Pound coins are stacked in front of a twenty pound note.
Getty Images
Pound coins are stacked in front of a twenty pound note.

It followed separate weak figures earlier this week from Markit/CIPS, whose Purchasing Manager's Index (PMI) indicated that business activity in the U.K. slowed to its worst pace in 19 months in December.

"Disappointing official data are adding to survey evidence which indicate that the rate of U.K. economic growth slowed towards the end of last year," Chris Williamson, chief economist at Markit, said in a release.

Economists now expect the U.K. economy to have grown by around 0.5 percent in the fourth quarter, down from 0.7 percent in the third quarter.

Read MoreECB has discussed $593B QE program: Source

'Here comes oil'

It's not all bad news for Britain, however, with the fall in global oil prices helping boost some aspects of the economy.

Manufacturing output, for instance, rebounded in November, rising 0.7 percent month-on-month in November.

Meanwhile, U.K. figures for November also showed that the trade deficit – the difference between the value of the U.K.'s imports versus its exports – narrowed to a 17-month low of £1.4 billion ($2.1 billion). This was helped in a large part by the decline in oil prices, which limited the values of imports.

"The U.K. lost some momentum late last year…and some caution is warranted about fourth quarter growth… but here comes oil," U.K. economist at Berenberg Bank, Robert Wood, said in a note Friday.

Read MoreWhy energy stocks may be the sleeper hit of 2015

"Falling oil prices put a huge new stimulus in the pipeline that should rev up the U.K. economic engine again," he said, adding that, as a net oil importer, "halving oil prices could shave upwards of £5 billion a year off the U.K.'s oil trade deficit."

The price of benchmark Brent crude has declined more than 50 percent since June 2014 on the back of a glut in supply and lack of demand. Brent crude oil traded around $50.47 a barrel on Friday, as prices suffered a seventh weekly loss.

However, Howard Archer, chief U.K. and European economist at IHS Global Insight, said that although the trade figures brought "brighter news" for the U.K. economy, "the suspicion remains that U.K. growth will remain heavily reliant on domestic demand, with net trade finding it difficult to make sustained positive contributions to U.K. growth in the near term at least."

Read MoreEurope deflation fears are back after weak data