Global Slowdown and Referendum Fears Weigh on British Economy

http://www.nytimes.com/2016/04/28/business/international/britain-economy-slowdown-brexit.html

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LONDON — Britain’s economy slowed in the first quarter, buffeted by a weaker global economy and by uncertainty before the country’s referendum on membership in the European Union.

Gross domestic product grew 0.4 percent in the first quarter, in line with economists’ forecasts but down from a growth rate of 0.6 percent in the three months ended Dec. 31, the Office for National Statistics said on Wednesday.

Analysts said the weak global economy and doubts about Britain’s future in the 28-member European Union had contributed to the slowdown.

“Given that the next quarter is also likely to see some pre-referendum jitters, it looks likely that Q2 will see a soft reading for G.D.P. growth,” said Martin Beck of the forecasting group and consultancy EY Item Club, referring to the second quarter.

The Organization for Economic Cooperation and Development warned on Wednesday that Britain’s large current-account deficit could become harder to finance, and that the pound could weaken if the country decides to leave the European Union.

The preliminary reading of gross domestic product does not include measures like investment and trade that would better reflect uncertainty surrounding a possible exit from the bloc, often referred to as “Brexit,” or a slowing global economy.

Output in the three months to March 31 was 2.1 percent higher than in the same period a year earlier, matching its rate of growth in the fourth quarter and slightly stronger than economists had expected.

The Bank of England, the central bank, has warned that interpreting economic data in the prelude to the referendum is likely to be tricky, but it has pointed to signs that uncertainty around the vote is weighing on investment.

The soft outlook for the world economy, combined with slowing wage growth in Britain, has prompted many economists to push their bets on when the Bank of England will raise rates to next year.

Growth in the first quarter was driven by the services sector, which expanded 0.6 percent compared with the fourth quarter. By contrast, industrial output fell 0.4 percent and construction output was down 0.9 percent.

Manufacturing and construction output had the steepest drops in annual terms since early 2013.

While consumer demand — a pillar of British economic growth — has remained broadly solid, retail sales dropped, adding to signs of a slowdown.