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UK Investment, Trade Data Disappointing

UK Investment, Trade Data Disappointing UK Investment, Trade Data Disappointing

The British economy has slowed down noticeably as the country moves toward the European Union membership referendum on June 23.

The uncertainty that shrouds the outcome is claiming a toll on the economy. The rate of growth fell in the first quarter of this year to 0.4% from 0.6% in the last quarter of 2015, according to statistics released Thursday, Xinhua reported.

Disappointing figures in business investment and trade, two areas that stand to suffer the most in case of a Brexit, were the major factors behind the setback.

The latest figures from the Office of National Statistics showed that business investment fell by 0.5% in the first quarter, and it looks set to drop further in Q2. Experts put this down to the referendum effect.

Sam Tombs of consultancy Pantheon Macroeconomics said, “Corporate confidence has declined and many firms probably only took Brexit risk seriously when the date of the referendum was announced in February.”

First-quarter growth was solely driven by consumers, whose spending rose 0.7% quarter on quarter.

The British recovery remains unbalanced, particularly in light of the fourth consecutive quarter of negative figures in trade balance—widening by 0.4 percentage points quarter on quarter to minus £18 billion (minus $26.3 billion) in the first quarter and reflecting continued weakness in the country’s largest trading partner, the EU.

The revised figures released by the ONS showed that in March alone output from the construction sector and from the dominant services sector, by itself representing more than three quarters of the economy, had their biggest monthly fall since December 2012.

This bodes badly for growth in the second quarter of this year. “The economy lost momentum within the quarter,” said Tombs. “Even if GDP rose 0.2% month-to-month in the following three months—matching last year’s average rate—it would grow by just 0.2% quarter on quarter in Q2. But the softness of recent surveys points to potential for an even weaker outturn.”

But the end of the second quarter also marks the passing of the referendum, and if the result is to remain in the EU, experts predict an economic rebound.

Elizabeth Martins, an economist with the HSBC, said: “The fact that the slowdown is driven by investment and net exports supports our view that there should be a bounce in the second half (assuming a pro-EU vote in June).”

Financialtribune.com