Reuters / Paul Hanna
LONDON — On Friday, new data from the Office for National Statistics showed UK GDP growth slowing to just 0.3% in the first quarter of 2017.
After close to 10 months of shockingly strong growth, the numbers confirmed what economists have been predicting for a long time — that Brexit will have a materially negative impact on the British economy.
The 0.3% growth in the first quarter marks the slowest growth since the beginning of 2016, and was largely driven by a drop-off in the dominant services sector, the ONS said.
Reasons for the slowdown were simple. As the falling pound — which has dropped 13% since June 23 last year — has pushed up inflation in recent months, regular Brits have started to feel the pinch, spending less, and slowing the consumer boom that has fuelled the country’s economic performance in the past handful of years.
With inflation set to rise further over the course of 2017, that consumer slowdown could intensify. However, there are reasons to believe that things not actually be that bad for the economy for the rest of the year.
Writing shortly after the GDP data was released, Chris Williamson, the chief business economist from IHS Markit — the compiler of the widely respected PMI surveys — noted: “A further slowdown is by no means a sure thing. Business surveys showed a surprise upturn in March, making up for some of the weakness seen earlier in the quarter.
“The all-sector PMI rallied to a level consistent with a quarterly GDP growth rate of 0.5% on the back of higher service sector business activity. Furthermore, inflows of new business across the three PMI surveys showed the second-strongest rise for over a year, suggesting that business activity growth may have picked up further in April.”
Williamson’s evidence is also backed up by a newly released survey from the respected lobbyist, the Confederation of British Industry, which showed that growth in British private sector firms picked up strongly in the three months to April.
Survey participants in the UK’s key sectors “showed that growth rose to a balance of +18% – the highest since December 2015 – climbing from the balance of +11% in the three months to March,” the CBI said.
Here is the chart:
“It’s good to still see momentum in the economy according to our surveys,” Rain Newton-Smith, the CBI’s chief economist said in a statement alongside the data.
Let’s be clear. Britain leaving the EU is going to damage the British economy. Consumer spending will continue to slow, impacting GDP growth and dragging on living standards. But things might not be quite as bad as we expected.