The British economy decelerated slightly in Q1 and more detailed data confirmed that GDP expanded just 0.4% on a sequential basis. The slowdown was mainly due to a deterioration in the external sector’s contribution to overall growth as exports swung to a contraction. Moreover, growth in domestic demand stalled in Q1. While the reading suggests that the uncertainty related to the looming EU membership vote is negatively affecting economic activity, the extent to which the slowdown can be completely attributed to the Brexit vote or whether it is instead related to underlying weakness of the economy is unclear. The situation is having a particular impact on the stability of the currency. While the pound gained some strength against the U.S. dollar after the latest polls showed that the “In Campaign” took a clear lead over the “Out Campaign”, confirmation that the economy had in fact slowed in Q1 added pressure on the currency.
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