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Brexit impact on UK GDP has been relatively muted

Publication Date: 30 Apr 2018 - By Gaurav Sharma (Associate Editor ReachX) By Gaurav S.

Macro Multi Asset FX UK


UK economic growth slowed in the first quarter of this year to 0.1% quarter-on-quarter and remains below pre-Brexit referendum levels, ratings agency Moody's has said in its latest Brexit Monitor. 

Preliminary GDP data released on Friday showed while construction activity slumped and fell by 3.3%, other sectors of the economy such as services and production grew by 0.3% and 0.7% from Q4 17 levels. Capital spending intentions also picked up in Q1 from levels seen at the end of last year.

However, businesses expect investment to expand at a still modest pace, in particular in services.

"Although UK economic growth has slowed in the first quarter to 0.1%, Brexit's impact on UK GDP has been relatively muted since the 2016 referendum and is more benign than forecasts before the UK voted to leave the European Union," said Colin Ellis, Moody's Chief Credit Officer EMEA and co-author of the Brexit Monitor.

Consumer indicators are below five-year averages and household consumption growth has slowed since the referendum with retail sales stagnating in recent months.

Consumer price inflation - on both the headline and core measures - has fallen from its 2018 peaks, but has edged higher since the referendum and is above five-year averages.

Trade balance indicators are close to five-year averages and have been trending above pre-referendum levels lately.

Labour market indicators are also near five-year averages and employment growth picked up early this year, while hiring intentions slowed in the first quarter.

Housing market indicators are trending below five-year averages and have fallen since the referendum. Surveys expect prices to increase only very gradually.

Markets are expecting short-term term sterling rates to rise by 25 basis points over the next three months and by 50 bps over the next year. At the same time, lenders see the rise in pressures on unsecured funding to households since the referendum to come to a halt in Q2.


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