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U.K. Growth Subdued as ‘Brexit’ Hurts Confidence, Markit Says

  • Services PMI rises from 3-year low but remains below average
  • Surveys indicate expansion slowed to 0.4% in 1Q from 0.6%

Global uncertainty and the upcoming European Union referendum are weighing on the U.K. economy and growth will remain subdued this quarter, according to Markit Economics.

In a report published Tuesday, Markit said its monthly surveys indicate expansion slowed to 0.4 percent in the first quarter from 0.6 percent in the last three months of 2015. While its services Purchasing Managers Index rose in March from a three-year low, the gauge remains below its long-run average.

“Business confidence remains in the doldrums as concerns about the global economy continue to be exacerbated by uncertainty at home,” said Chris Williamson, chief economist at Markit in London. “It therefore seems unlikely that March’s upturn in the pace of growth represents the start of a longer term upswing.”

The pound remained lower against the dollar after the report and was down 0.3 percent at $1.4219 as of 9:35 a.m. in London.

QuickTake Will Britain Leave the EU?

The report highlights how the “Brexit” vote is looming over the outlook for the U.K. Bank of England financial stability officials said last week that uncertainty surrounding the referendum could lead to a further depreciation of the pound and impact the cost and availability of financing for borrowers.

In its analysis, Markit said survey respondents cited Brexit as a factor undermining sentiment among executives.

Markit’s manufacturing index, published last week, rose less than economists forecast in March, and a construction gauge was unchanged. The rise in the services index to 53.7 in March was “insufficient to prevent the PMI surveys from collectively indicating a slowdown,” Williamson said.

Inflationary pressures in the services sector increased in March, with input prices rising at the fastest rate in 18 months due to higher labor costs, rents and fuel costs. Employment also grew, though remained weaker than the long-term trend.

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