Britain's economy slows to near-stall speed before EU referendum - Markit

By Ana Nicolaci da Costa

LONDON (Reuters) - Britain's economy slowed in April and may stall as consumers worry about June's referendum on whether Britain should remain a member of the European Union, a survey of the dominant services industry showed on Thursday.

If last month's weakness persists, overall British economic growth may be just 0.1 percent in the second quarter, down from quarterly growth 0.4 percent in the first three months of this year, financial data company Markit said.

Britain's economy has outpaced much of the rest of the rich world over the past three years. But it has been showing signs of slowing since late last year, hurt by a weakening global economy and by uncertainty about the country's EU future.

Services grew at their lowest rate in more than three years in April, according to Markit's services activity index, which fell to 52.3 in April from 53.7 in March, below even the lowest forecasts in a Reuters poll of economists.

Companies said uncertainty about the referendum and weakness in the global economy were worrying the main drivers of Britain's recovery: its consumers.

"The deterioration in April pushes the surveys into territory which has in the past seen the Bank of England start to worry about the need to revive growth," said Chris Williamson, chief economist at Markit, which compiles the survey.

Most economists believe that a decision by voters to leave the EU on June 23 would deal at least a short-term blow to the economy, possibly prompting the BoE to cut already record-low interest rates or expand its bond-buying programme.

But a vote for a so-called Brexit would probably weaken the pound, which would add to inflation and could keep the BoE from acting.

Thursday's survey showed growth in the input costs paid by service companies were the highest in over two years in April, suggesting that a gradual rise in inflation will continue.

Williamson said early timing of the Easter holiday this year might also have contributed to the slowdown.

Next, Britain's most successful clothing retailer over the past decade, warned on Wednesday that its sales could fall as much as 3.5 percent this year, hit by a slowdown in consumer spending as well as cool weather.

Last week, the head of the Organization for Economic Co-operation and Development said Britain was getting a taste of the potential shock to its economy should it vote to leave the EU.

ALL-IMPORTANT SERVICES

Britain's economy increasingly relies on services, which represent about 80 percent of the economy. Manufacturing and construction failed to contribute to growth for much of the past year and surveys of those sectors published this week suggested that trend was likely to continue.

Manufacturing output unexpectedly shrank in April while construction output grew at its slowest rate in nearly three years.

Not only did services activity slow in April, but job growth was its slowest since August 2013, reflecting a recent weakening in the labour market as a whole.

Employment in manufacturing contracted in April and official data has shown that the number of people out of work rose for the first time since mid-2015 in the three months to February.

While the services new business index rose to 53.6 from 52.9 in March, outstanding business fell in April. The decline was linked to completed projects not being replaced with new business in the current economic environment, Markit said.

(Editing by William Schomberg, Larry King)