Britain’s economy grew at 0.4% in the first three months of the year, despite a slump in manufacturing and construction output that has dragged down GDP growth over the last year.
Increases in business services and government spending, especially on the NHS, propped up growth in the first quarter, according to the second estimate of GDP by the Office for National Statistics.
The figures, which confirm an earlier estimate that growth slowed down from 0.6% in the last quarter of 2015, will be leapt on by the Treasury as another sign of the uncertainty surrounding the EU referendum affecting business confidence and investment.
Most worryingly, business investment was estimated to have fallen by 0.5% in the first quarter – the first fall in three years – as companies shelved plans to buy new equipment and build new offices and factory space. Household consumption, by contrast, increased by 0.7% on the previous quarter.
Most economists blamed uncertainty over the referendum’s outcome, weak overseas growth and financial market volatility for a slowdown that has been accelerating since last summer.
Chris Williamson, chief economist of financial data provider Markit, said the UK economy presented a veneer of good health that masked “an unbalanced economy and a slowing pace of expansion, with the annual rate of growth slipping to the weakest for almost three years”.
Howard Archer, chief economist at IHS Global Insight, said: “Not only did GDP growth slow in the first quarter, but it was entirely dependent on the services sector on the output side and heavily reliant on consumer spending on the expenditure side, which will fuel concern over an unbalanced economy.”
Williamson said he was concerned that the pace of economic growth this coming year could easilyslow further from last year’s 2.2% expansion.
He said the chances were growing that the Bank of England would be forced to shelve plans for a first interest rate rise since the financial crisis, leaving base rates at the record low of 0.5% well into 2017.
This article was written by Phillip Inman Economics correspondent, for theguardian.com on Thursday 26th May 2016 10.41 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010