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Is Brexit weighing on the UK economy?

Fathom Consulting

24 Apr 2017

A man carries a EU flag, after Britain voted to leave the European Union, outside Downing Street in London, Britain June 24, 2016. Photographer: Neil Hall

Fathom Consulting’s chart of the week shows how, amid the uncertainty of the UK’s impending exit from the EU, the economy has felt the impact.

According to Fathom’s model, which combines monthly production data with information from surveys, UK economic growth slowed to 0.4% in the first quarter of 2017.

If correct, this would represent a marked slowdown from the 0.7% recorded in the final quarter of 2016.

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Chart of the week — UK production and construction output

Both survey and non-survey indicators point to a deceleration, suggesting that Brexit is beginning to weigh on the economy.

The downturn in output over the first two months of this year appears to have been widespread, with some sectors witnessing outright contraction.

Indeed, activity in the production and construction sectors fell by 0.9% and 1.8% in the two months to February, respectively.

Britain’s Prime Minister Theresa May leaves to greet Qatar’s Prime Minister and Minister of Interior Sheikh Abdullah Bin Nasser Al Thani at 10 Downing Street in London, Britain March 27, 2017. Photographer: Neil Hall

Looking for positives

In spite of this, with October’s dip weighing on the fourth quarter average, Fathom forecasts UK production industries may manage to eke out positive quarterly growth of 0.7% in Q1.

Meanwhile, Fathom’s Analysts estimate that private service sector activity, which accounts for 55% of output, expanded by around 0.4% over the first quarter.

For the year as a whole, Fathom forecasts real GDP growth of 1.1%, slowing to 0.4% in 2018. This compares unfavourably with most forecasts, which have been revised higher in light of the unexpected resilience of the UK economy post Brexit vote.

Want more charts and analysis? Access a pre-built library of charts by Fathom Consulting via Datastream Chartbook in Thomson Reuters Eikon

The divergence between Fathom Consulting’s forecast and the consensus reflects Fathom’s view that developments through the second half of last year were a case of ‘pain deferred’, rather than ‘pain avoided’.

To that end, British Prime Minister Theresa May’s call for a snap general election to strengthen her position before the slowdown materially feeds through makes sense from a timing perspective.

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