UK: Brexit uncertainty suppresses business investment – Rabobank

Research Team at Rabobank, notes that the Office for National Statistics (ONS) confirmed that UK GDP grew by 0.4% in the first quarter of 2016.

Key Quotes

“Growth in household consumption (0.7% q-o-q) and household investment (1.4% q-o-q) underline the importance of household spending. Strong domestic demand has also translated into high import growth (0.8% q-o-q). Because exports shrank by 0.3% q-o-q, net trade subtracted 0.4%-points of economic growth.

Notable was the second consecutive decline in business investment by 0.4% q-o-q in 16Q1, after the large 2% q-o-q decline in the last quarter of 2015. The high level of uncertainty about the outcome of the EU referendum and the expected negative impact of a Brexit probably explains these developments.

Companies postpone investments until there is more certainty about the future of British free trade and the economic outlook. This is also visible in the drop of investment intentions of companies in the manufacturing sector and services sector. Because we expect that the British people will vote in favour of EU membership, we expect that business investment will rebound in the second half of 2016. This will give a strong, but temporary, boost to the UK economy. A vote in favour of Brexit will likely suppress business investment in the next two years.”