Britain’s economy slowed sharply in the first three months of 2016 as factors unrelated to the looming in/out EU referendum put a brake on growth.
The Office for National Statistics (ONS) said there was no evidence for or against a “Brexit effect” on gross domestic product (GDP) as it reported that output had expanded by 0.4% in the first quarter – down from 0.6% in the final three months of 2015.
The government’s decision to hold a referendum was not taken until late February, and business groups cited the impact of weaker global trade and the new year turbulence in the financial markets as more likely explanations for the softness in growth.
Lee Hopley, chief economist at EEF, the manufacturers’ organisation, was reluctant to blame speculation about Brexit for the slowdown.
“The effects of global financial market volatility, stuttering world trade growth and challenges on the high street feel like more obvious explanations for the slowdown. Still, referendum wobbles could make themselves felt in the coming months, highlighting the continuing downside risks for the economy this year.”
However the chancellor, George Osborne, said uncertainty caused by the referendum had been a factor. “It’s good news that Britain continues to grow, but there are warnings today that the threat of leaving the EU is weighing on our economy.
“Investments and building are being delayed, and another group of international experts, the OECD, confirms British families would be worse off if we leave the EU. Let’s not put the strong economy we’re building at risk, and vote to remain on 23 June.”
Solid growth in the services sector, which accounts for more than three-quarters of GDP, compensated for falls in output in the other three parts of the economy: production, construction and agriculture.
The ONS said services had expanded by 0.6% in the first quarter, adding 0.5 percentage points to growth. Construction fell by 0.9%, production by 0.4% and agriculture by 0.1%. Between them, the three declining sectors subtracted 0.1 points from quarterly growth, leaving the year-on-year rate of growth unchanged at 2.1%.
After its performance in the first quarter, the economy is almost 8% bigger than before it dropped into recession in early 2008. However, growth has been entirely dependent on the service sector, with output in both construction and manufacturing still below the levels of eight years ago.
The TUC general secretary, Frances O’Grady, said: “Falls in manufacturing and construction are a serious concern, keeping growth at a three-year low. For all the rhetoric of fixing the roof, it is the foundations of the economy that are being left to crumble.”
Joe Grice, chief economist at the ONS, said: “Today’s figures suggest growth has slowed as compared with the pace up to the middle of last year. Services continue to underpin the economy but other sectors have shown falling output this quarter.”
A further easing of growth is being anticipated for the second quarter, a period that will include the referendum on 23 June. The Bank of England has already warned that activity could be affected as the date of the poll gets nearer, with firms likely to put investment decisions on hold until the outcome is known.
Chris Williamson, economist at Markit, said: “Uncertainty about the economic outlook appears to have intensified ahead of the EU referendum, and the danger is that this will cause a lull in businesses decision making as the June vote draws closer, which will in turn reduce business spending, investment and hiring in the second quarter.”
This article was written by Larry Elliott, for theguardian.com on Wednesday 27th April 2016 10.03 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010