UK growth slows ahead of Brexit vote

Azad Zangana, senior European economist at Schroders, comments on the most recent UK GDP figures.

The Office for National Statistics (ONS) estimates UK GDP to have grown by 0.4% in the first quarter of 2016 – a slowdown compared to the 0.6% quarterly growth rate recorded previously.

Recent business surveys suggest nervousness among 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.

Within the details of the GDP report, all of the growth in the first quarter came from the services sector which grew by 0.6%. Production, including manufacturing, contracted by 0.4%, while construction also contracted 0.9%.

The estimates released today are preliminary estimates, and may be revised up or down. However, 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.

Mona Dohle
Mona Dohle speaks German and Dutch, she is DACH & Benelux Correspondent for InvestmentEurope. Prior to that, she worked as a journalist in Egypt and Palestine. She started her career as a journalist working for a local German newspaper. Mona graduated with an MSc in Development Studies from SOAS and has completed the CISI Certificate in International Wealth and Investment Management.

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