UK economy to remain subdued ahead of EU referendum

Yesterday, the Office of National Statistics released its first estimate of the economic growth for the first quarter. According to the data, the economic growth decelerated to 0.4% q/q from previous quarter’s 0.6% q/q growth. The GDP data, along with the February labor market report underpins the view than the UK economy is decelerating before the UK’s EU referendum, according to Danske Bank. The labor market report of February showed that employment remained unchanged in January and declined in February.

UK companies have stated that uncertainties regarding Brexit have impacted demand in the recent PMI surveys. Combination of both quarterly economic growth and employment weakening gives a solid indication of slowing UK economy. UK economic growth is likely to remain subdued before the EU referendum, noted Danske Bank.

According to most of the opinion polls that have been released recently show ‘remain’ camp ahead; however it still implies that it is a close race. The latest Betfair information shows that the chance of UK leaving the EU is at 28%. Meanwhile, declining employment, sluggish growth, weaker wage inflation and lower inflation indicate that the Bank of England is not expected to undertake any measures before the UK’s EU referendum, added Danske Bank.

Yesterday’s ONS data showed that the UK’s services sector, which accounts for 78.6% of the GDP, was the sole positive contributor to the growth. It expanded 0.6% q/q, contributing 0.5 percentage points to GDP. Meanwhile, construction subtracted 0.1pp from the GDP growth.  Total industrial production declined 0.4%, dragging the total economic growth down by 0.1pp.