GDP growth slows amid Brexit uncertainty

The Office for National Statistics (ONS) estimates UK GDP to have grown by 0.4% in the first quarter of 2016

GDP growth slows amid Brexit uncertainty

The UK’s economic growth slowed down during January to March 2016, growing by 0.4% compared to the 0.6% growth seen in Q4 of 2015.

“This represents a fall from the 0.6% seen in the final quarter of last year, but investors should note this was in line with market expectations,” said Ian Forrest, investment research analyst at The Share Centre.

“This slowdown was no surprise given relatively weak corporate earnings announced so far for the first quarter. It is worth noting that this is only the first estimate and is based on less than 50% of all the data used in the final figure.”

GDP was 2.1% higher compared with the same quarter a year ago but the figures showed a fall in activity in the production and agriculture sectors with a notable 0.9% decline in the construction sector. Services remained the only one of the major sectors to show continued growth with a 0.6% increase.

“The UK economy continued to be buffeted by a weak external sector, with the manufacturing sector showing no signs of recovery in this morning’s GDP data,” Shilen Shah, bond strategist at Investec Wealth & Investment, said.

“The service sector came to the rescue during the quarter again, with the construction sector acting as a drag. Whether we have bounce back later in the year is likely to depend on the outcome of the Brexit referendum, with a vote to remain likely to support consumer and business confidence.”

Azad Zangana, senior European economist at Schroders, agrees that the decline is down to the Brexit referendum. “Recent business surveys suggest nervousness amongst firms in the run up to the UK’s referendum on its EU membership, which may be prompting companies to postpone investment and hiring plans.

“This was also evident in the business investment figures in the second half of last year and the most recent labour market statistics, which show a severe slowdown in employment growth.”

“It appears that the economy has hit a speed bump. Growth is likely to remain sluggish until the result of the referendum is known. If the UK votes to remain in the EU then growth is likely to accelerate significantly in the second half of the year. If, however, the UK votes to leave, then growth is likely to slow further on the back of the added uncertainty for businesses.

“Meanwhile, the Bank of England is in no rush to raise interest rates. Assuming the UK votes to remain in the EU, the Bank will then want to see evidence of a rebound in growth and higher inflation before considering raising interest rates. This may not happen until the end of this year or the start of next.”

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