UK: Brexit Takes an Early Toll - ING
James Knightley, Senior Economist at ING, suggests that the business
surveys, employment numbers and sentiment data suggest that
Brexit-related uncertainty is weighing on the UK economy.
Key Quotes
“Tomorrow
sees the release of 1Q GDP data with the real threat that it will show
the weakest quarterly growth number since 4Q12. After a decent start to
the year, where January data had looked strong with retail sales and
business surveys performing well, there has been a rapid loss of
momentum in February and March.
Purchasing Managers’ Indices
dropped to levels consistent with GDP growth of around 0.3% while retail
sales contracted in both months and employment growth slowed markedly
in the three months to February – in fact unemployment actually rose
21,000 during the period.
It is likely that much of this
weakness is related to anxiety over the UK’s referendum on EU
membership. Businesses appear to be particularly worried with a recent
survey of Chief Financial Officers by Deloitte’s suggesting that Brexit
fears are the biggest issue for UK companies right now. This has led to a
steep drop in risk appetite with expectations for hiring new workers
and capital spending at three-year lows. Consumers are also becoming
more cautious with consumer sentiment having dipped, driven by a big
drop in how households feel the economic situation will develop over the
next 12 months.
In terms of tomorrow’s GDP report we see some
downside risk to the 0.4% QoQ consensus prediction. We slightly favour a
0.3% outcome given the very poor industrial production numbers and
construction output data, which have been contracting recently. We feel
that this is too much of a drag for services to offset enough to get a
0.4% rate. This loss of momentum will make it even more likely that the
BoE will prolong the period of ultra-loose monetary policy, which is
likely to keep sterling under pressure.”
