LONDON (AP) — The British economy slowed sharply in the first quarter of the year, official figures showed Friday, reining in expectations that the Bank of England will hike interest rates again next month and renewing concerns about the health of the economy less than a year from Brexit.
In its preliminary snapshot of the economy during the January to March period, the Office for National Statistics found that quarterly growth slowed to 0.1 percent, its weakest since the end of 2012, from 0.4 percent in the previous three-month period.
A slowdown had been expected in light of cold and snowy conditions during much of the quarter, but the scale of the decline was a surprise and prompted a sharp fall in the value of the pound. It was down 0.7 percent at $1.3822, and near seven-week lows.
In fact, the agency said the weather conditions, largely associated with what became termed the “Beast from the East” in late February and much of March, were “generally small.” While clearly affecting construction sector, which saw output slump by 3.3 percent during the quarter, other parts of the economy, like energy and online sales, benefited.
The slowdown has further cemented Britain’s place in the slow lane of major economies. Before the country voted to leave the European Union in June 2016, it was one of the fastest-growing Group of Seven economies, now it’s one of the slowest with Brexit uncertainty one the reasons why. Britain is due to leave the EU in March 2019 but it’s still unclear how it will do so and that’s weighed on business sentiment in particular.
“One is tempted to attribute a large part of that to uncertainty following the Brexit referendum,” said Ivan Petrella, Associate Professor of Economic Modelling & Forecasting at Warwick Business School. “After the initial boost to growth associated to the fall of the pound, the U.K. economy considerably under-performed with respect to its European partners last year and shows all the signs of heading for the same trend this year.”
Given the near-stagnation in the first quarter, expectations that the Bank of England will raise its main interest rate by another quarter-point on May 10 have been sharply reduced, if not quite extinguished. The central bank had indicated another rate hike in May was possible as it tries to bring inflation down. Though still above the official 2 percent target, annual inflation fell more sharply than anticipated to 2.5 percent in March.