UK growth has slowed in the first quarter of the year amid an ongoing steel crisis, troubling worldwide market activity and fears that the UK will leave Europe. It continues a pattern of declining growth seen in the second half of 2015 and further lends credence to claims that the world could soon be seeing recession conditions once again.
Overall, the economy grew by 0.4% between January and March, a drop of 0.2% from the 0.6% growth seen in the final three months of 2015. Though the drop paints a glum picture, it comes as little surprise to economists, who had predicted this fall.
The growth was driven by Britain’s formidable services sector, which grew a further 0.6% in Q1, say the Office for National Statistics. That’s in sharp contrast to industrial production and manufacturing which shrunk by 0.4% and Britain’s construction sector, which shrunk 0.9%. This contraction comes even as the value of the pound falls, making UK exports cheaper for the rest of the world and therefore more attractive.
Joe Grice, the Office of National Statistics chief economist 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."
Fears over global growth, the falling price of oil and a slowdown in China’s explosive growth (which prompted a huge market sell-off) have all put a stall on the UK’s growth, and it’s being compounded by the continued uncertainty of the forthcoming European participation referendum.
Those Brexit fears have driven the price of the pound down, further depressing the economy, however an intervention from Barack Obama has lifted the pound slightly, climbing to a three-month high earlier in the week whilst George Osborne continued to make his claim that EU uncertainty is weighing heavy on the economy, saying "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."
However, not everyone is in agreement. Lee Hopley, chief economist at EEF, questioned the extent to which the forthcoming referendum could affect GDP. He said “In line with expectations it’s been a fairly subdued start to the year with survey data giving a clear steer that we were heading for a softer patch. While there is clearly a weakening trend the first estimate is hardly woeful, with manufacturing likely to have seen something of a bounce in March after a disappointing February.
“The extent to which this across-the-board weakening can be attributed to political uncertainty ahead of the referendum is open to question. 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.”