The UK economy lost momentum in the first quarter as services posted their weakest performance for almost a year and industrial production continued to decline.
Economic growth slowed to 0.4 per cent from 0.6 per cent in the final three months of 2015, as forecast in a Bloomberg survey of economists. The estimate, published by the Office for National Statistics in London Wednesday, matched the weakest reading since the end of 2012. Gross domestic product rose 2.1 per cent from a year earlier.
With less than two months to go before Britons decide whether to remain in the European Union, the figures may provide ammunition to both sides in the increasingly bitter debate. While those wanting to stay in the 28-nation bloc say that uncertainty is taking its toll, Brexit campaigners argue the slowdown reflects a period a global turmoil fuelled by concerns over China.
The latest overview of the economy came as the Organization for Economic Cooperation and Development issued a warning about the potential fallout from Brexit, joining groups including the International Monetary Fund and the Bank of England. It said Britain would be hit by tighter financial conditions, weaker confidence, higher trade barriers and restrictions on labour mobility. The result would be an economy 5 per cent smaller by 2030 compared with continued EU membership.
Lopsided Growth
The GDP figures underscore the lop-sidedness of Britain’s 13 consecutive quarters of expansion. Services, the largest part of the economy, expanded 0.6 per cent, though the pace of growth slowed from 0.8 per cent in the fourth quarter. Industrial production shrank for a second straight quarter, declining 0.4 per cent on the back of weaker manufacturing and oil output, and construction declined 0.9 per cent.
The slowdown in services was driven by business services and finance, which grew 0.3 per cent in the first quarter - less than half of the pace of the previous three months.
The US will report its first-quarter growth estimate on Thursday - a day after the latest Federal Reserve policy decision - with economists predicting a slowdown to an annualized rate of 0.6 per cent from 1.4 per cent in the fourth quarter. On the same basis, the UK expanded 1.6 per cent. .
The BOE has said Brexit nerves are weighing on investment and hiring - unemployment rose for the first time in seven years between December and February - and economists increasingly expect policy makers to maintain the benchmark rate at a record low 0.5 per cent until next year.
On Friday, Goldman Sachs Group Inc. pushed back its rate-increase forecast to the second quarter of 2017 from the fourth quarter of this year.
Provisional figures show that services grew 0.2 per cent in March following a 0.1 per cent gain in February. Industrial production jumped 1.9 per cent after a 0.3 per cent contraction the previous month. Construction fell 4.4 per cent for a third month of decline.
While the economy as a whole returned to its pre-recession size in 2013, population growth meant that Britain remained poorer on a per capita measure until last year. GDP per head grew 0.2 per cent in the first quarter, down from 0.4 per cent in the fourth quarter.
The report released Wednesday is the first of three estimates from the ONS and may be revised as it’s based on about 44 per cent of the information that will ultimately be available
Bloomberg
