Brexit Nerves Seen Hampering U.K. Economy in First Quarterby
Economists in survey see growth easing to 0.4% from 0.6%
Goldman Sachs pushes back rate-increase forecast to 2017
The U.K. economy lost momentum in the first quarter as businesses and households braced for the vote on whether Britain should remain in the European Union, official figures are predicted to show next week.
Gross domestic product grew by 0.4 percent, matching the weakest reading since the end of 2012, according to the median forecast in a Bloomberg survey of 38 economists. Growth was 0.6 percent in the fourth quarter.
Consumers have led 12 straight quarters of expansion as global turmoil weighs on manufacturing and exports, but signs of weakness are starting to appear with retail sales posting their biggest monthly decline in more than two years in March.
That was the latest in a string of disappointing data in recent weeks. Unemployment rose for the first time in seven months and a sharp drop in manufacturing in February left industrial output on course for a second straight quarter of contraction. Once again, it leaves the British economy reliant on the performance of its dominant services sector.
Britain holds its EU referendum on June 23 and polls continue to suggest the outcome is hard to call, prompting investors to drive down the pound. Markit Economics said this month the vote, together with troubles in the global economy, had left business confidence “in the doldrums” as it predicted growth of 0.4 percent in the first quarter. The National Institute of Economic and Social Research is even more pessimistic, foreseeing just 0.3 percent.
On Friday, Goldman Sachs Group Inc. said it sees the Bank of England keeping interest rates at a record-low 0.5 percent for longer than previously forecast. It now expects an increase in the second quarter of 2017 instead of the fourth quarter of this year. BOE Governor Mark Carney has said uncertainty surrounding the Brexit vote is creeping into indicators such as hiring intentions and investment.
“The U.K economy lost momentum,” Goldman economist Andrew Benito wrote in an e-mailed note. “While that owes partly to the effects of EU referendum-related uncertainties, underlying momentum also appears to have softened. Lower trend growth has implications for monetary policy.”
The Office for National Statistics will release the GDP report at 9:30 a.m. on Wednesday. It will base its estimate on about 44 percent of the data that will ultimately be available. In the Bloomberg survey, forecasts ranged from 0.3 percent to 0.5 percent. The U.K. is typically the first Group of Seven nation to report quarterly GDP, with the U.S. scheduled to follow a day later.