The figuresBy the time the numbers finally arrived, the analysts were on the money. Growth in the UK economy came in at 0.4 per cent in the first three months of the year, according to the number crunchers at the Office for National Statistics (ONS). No surprises in where the dark spots came from. Manufacturing and construction both shrunk over the three months to March, according to the ONS, leaving the UK's mighty services sector to do the legwork. It tried – growing by 0.6 per cent over the period. But, alas, it was not enough.
Production contracted by 0.4 per cent, construction by 0.9 per cent and agriculture also slipped by 0.1 per cent. Sterling's collapse during the first three months of the year didn't provide enough relief for exporters to boost growth either. The pound started the year at $1.50 – it ended March at $1.43, briefly flirting with the depths of $1.38 for a period in late February.
The reactionThe immediate debate after the figures were released was whether the slowdown is a blip, a sign that the business cycle is winding down, or just that 0.4 per cent is the new normal in the low-growth low-inflation era? Ruth Miller at Capital Economics agreed that a turnaround could be on the cards after the referendum: "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." Employers group the CBI said consumer spending should "hold up as low oil prices as decent household growth reinforce spending", which should keep the UK economy on track. Kallum Pickering at Berenberg, also said that the numbers should not be a great cause for concern. "The slowdown was caused by largely idiosyncratic and transitory risks, namely the financial market rout at the start of the year and the forthcoming EU referendum."
All roads lead to Brexit?Chancellor George Osborne didn't miss the opportunity to warn that the threat of Brexit was leading to uncertainty in the economy and a slowdown in investment:
It's good news that Britain continues to grow, but there are warnings today 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.If Brexit blues are playing a role, then the second quarter will probably make for even more depressing reading. "There are risks that could knock growth off course. Global growth could slow further, hitting already weak exports and offsetting the boost from the falling pound. There is also a risk that concerns about debt positions in China and emerging markets could flare up again, leading to a return of financial market volatility," said Rain Newton-Smith at the CBI. The simple longevity of the recovery could raise alarm bells for some, as the UK economy might be entering a cooler phase for purely cyclical reasons. https://twitter.com/RBS_Economics/status/725251526499901440 It is also worth the obligatory mention that this just a first estimate. The numbers can – and do – change.