Slowing UK GDP growth in the first quarter of the year has divided economists, with some blaming the country’s EU referendum and others emphasising an underlying malaise.
UK GDP increased by 0.4 per cent in the first quarter of 2016 – in line with consensus expectations but a fall of 20 basis points from the previous quarter.
Initial estimations from the Office for National Statistics (ONS) said the 0.4 per cent increase was due entirely to services sector growth.
Figures showed a 0.6 per cent increase in the services sector compensated for 0.9 per cent and 0.4 per cent declines in construction and production, respectively. The ONS said GDP at the end of the first quarter was 2.1 per cent higher than the same stage in 2015.
Capital Economics UK economist Ruth Miller said the slowdown in economic growth in the first quarter should be short term, but said a potential Brexit was taking its toll.
Ms Miller said: “There is still a risk Brexit jitters will further sap the recovery of [the UK’s GDP growth] momentum in the second quarter. But even if growth slows, if the UK voted to stay in the EU, we would probably see a bounce-back in quarter three.
“The start of the year saw turbulence in global financial markets and concerns about the global recovery, which have since abated. So we would not be surprised if growth were to accelerate in the second half of the year.”
However, Pantheon Macroeconomics chief UK economist Samuel Tombs was less positive.
He said services growth was a knock-on effect from a 0.3 per cent month-to-month rise from December. But with the ONS estimating March’s figure stood at just 0.2 per cent, quarterly figures could weaken in future.
He also said the EU referendum could not be blamed for everything.
“Concerns about Brexit likely played a role in the slowdown and they probably will take a toll on GDP growth in the second quarter. But the downward trend in GDP growth since 2014 suggests the EU referendum cannot be blamed for all of the economy’s ills.”
Mr Tombs added: “The fiscal squeeze has tightened this year after a pre-election pause, while the boost to growth in household spending from falling saving and rapid employment growth has run its course. The real effective exchange rate remains uncompetitive and its recent fall won’t be sustained if the UK remains in the EU. As a result, hopes of a post-referendum rebound look misplaced.”
Multi-manager Architas said the figures cemented the view the Bank of England would not raise interest rates this year, should the UK remain in the EU.
Senior investment manager Nathan Sweeney said: “As a result, we have been adding duration to our portfolios as we are less concerned about the impact of rates rising and the effects this can have on duration.”
