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News Analysis: British economy stalls before Brexit vote

Xinhua, May 28, 2016 Adjust font size:

The British economy has slowed down noticeably as the country moves toward the European Union (EU) membership referendum on June 23.

The uncertainty that shrouds the outcome is claiming a toll on the economy. The rate of growth fell in the first quarter of this year to 0.4 percent from 0.6 percent in the last quarter of 2015, according to statistics released Thursday.

Disappointing figures in business investment and trade, two areas that stand to suffer the most in case of a Brexit (exit from the EU), were the major factor behind the setback.

The latest figures from the Office of National Statistics (ONS) showed that business investment fell by 0.5 percent in the first quarter, and experts put this down to the referendum effect.

"Business investment fell 0.5 percent in Q1, and it looks set to drop further in Q2," warned Sam Tombs of consultancy Pantheon Macroeconomics.

"Corporate confidence has declined and many firms probably only took Brexit risk seriously when the date of the referendum was announced in February," he added.

First-quarter growth was solely driven by consumers, whose spending rose 0.7 percent quarter on quarter.

The British recovery remains unbalanced, particularly in light of the fourth consecutive quarter of negative figures in trade balance -- widening by 0.4 percentage points quarter on quarter to minus 18 billion British pounds (minus 26.3 billion U.S. dollars) in the first quarter and reflecting continued weakness in the country's largest trading partner, the EU.

The revised figures released by the ONS showed that in March alone output from the construction sector and from the dominant services sector, by itself representing more than three quarters of the economy, had their biggest monthly fall since December 2012.

This bodes badly for growth in the second quarter of this year. "The economy lost momentum within the quarter," said Tombs. "Even if GDP rose 0.2 percent month-to-month in the following three months -- matching last year's average rate -- it would grow by just 0.2 percent quarter on quarter in Q2. But the softness of recent surveys points to potential for an even weaker outturn."

But the end of the second quarter also marks the passing of the referendum, and if the result is to remain in the EU, experts predict a economic rebound.

Elizabeth Martins, an economist with the HSBC, said: "The fact that the slowdown is driven by investment and net exports supports our view that there should be a bounce in the second half (assuming a pro-EU vote in June)." Endi