×

UK GDP growth slows down amid 'Brexit' fears

The U.K. economy posted a slowdown in growth in the first quarter amid concerns that a forthcoming vote on the country's membership of the European Union is scaring investors and industry.

Preliminary estimates from the Office for National Statistics (ONS) showed on Wednesday that first quarter growth slowed to 0.4 percent in the first quarter, from 0.6 percent in the previous quarter.

Year-on-year, the economy grew 2.1 percent, the ONS said.

Trafalgar Square, London
Education Images/UIG via Getty Images
Trafalgar Square, London

Output increased in the services sector by 0.6 percent in the first quarter, the ONS said, but decreased among the other three main industrial groupings within the economy, with production falling by 0.4 percent, construction output by 0.9 percent and agriculture by 0.1 percent.

The estimates were largely in line with expectations although some analysts had predicted a more pronounced slowdown.

U.K. Chancellor George Osborne said the data was a warning 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," he said in a statement released by the Treasury.

The widely-predicted slowdown was attributed by analysts to the "increasing EU referendum risk," as Barclays' analysts said in a note on Wednesday, and fears of a so-called "Brexit" should U.K. voters elect to leave the EU when a referendum is held on June 23.

The ONS told CNBC on Wednesday that it had seen no anecdotal evidence that the 'Brexit' debate had had any impact on the data, however.

Uncertainty over the referendum did not bode well for second-quarter growth, either, analysts warned.

"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," Chris Williamson, chief economist at Markit, said in a note following the GDP data.

"Surveys were already showing business optimism about the year ahead to have fallen in the first quarter, dropping to levels commensurate with a near-stalling of economic growth as 'Brexit' worries exacerbate existing concerns about the fragility of economic growth at home and abroad," he added.

A "Brexit" has also been blamed for the latest U.K. employment figures which offered a mixed picture on the health of the economy. Data published by the Office for National Statistics (ONS) last week showed that although the unemployment rate held steady at 5.1 percent in the three months to February, the actual number of unemployed rose by 21,000 in the three months to February to 1.7 million people.


Not everyone was so pessimistic, however. Ruth Miller, U.K. economist at Capital Economics, said the slowdown "should prove temporary."

"Today's GDP figures confirmed that the economic recovery cooled in the first quarter, but we think that this should only be temporary and that growth will regain some pace later this year," Miller said in a note Wednesday.

"Of course, there is still a risk that Brexit jitters will further sap the recovery of its momentum in Q2. But even if growth did continue to slow, if the UK voted to stay in the EU, we would probably just see a bounce-back in Q3. Meanwhile, the start of the year saw turbulence in global financial markets and concerns about the global recovery, which have since abated," she said.

"So we would not be surprised if growth were to subsequently accelerate in the second half of the year, putting the economy back on track to meet our full-year forecast (of 2.2 percent GDP growth in 2016)."

Follow CNBC International on Twitter and Facebook.