The current indications of a slowdown in UK economic growth may well be only temporary. Meanwhile, there have been signs of some notable increase in inflationary pressures in all three main output sectors of the economy.
The trio of notably weak Markit/CIPS Purchasing Managers' Indices (PMI) published this week indicate UK gross domestic product slowed to as low as 0.1% at the start of the second quarter, as all three main segments of the output side of GDP decelerated to their three-year low.
The feedback from the main sectors - manufacturing, services and construction - revealed the upcoming June 23 EU referendum was among the primary reasons behind this current slowdown, as the increased level of business uncertainty "led some clients to delay spending", Markit said.
The PMI surveys measure immediate sentiment among companies' purchasing managers, and not expectations or future intentions, so it is hard at the moment to see how lasting this marked slowdown could be.
But the fact that a majority of credible forecasters and global economics organizations attribute most of the current uncertainty and deceleration to the EU referendum, which many view as one of the most significant post-war political and economic events - we might expect the UK economy to return to its average quarterly pace of around 0.5% in the second half of this year, if the UK stays in the EU and all else stays equal.
The economics team at Berenberg's London branch argued in a note on May 5 that there is "no need to panic" after gloomy PMIs, as the underlying growth prospects remain stable, and strong enough to keep the momentum into the second half of the year.
"... Monthly data can be volatile and soft data is often influenced by sentiment as much as the underlying economic performance," Berenberg analysts argued.
"Indicators of consumer and business sentiment have declined in recent months owing to global growth concerns in Q1 and Brexit uncertainty in Q2. Nevertheless, they remain in line, or just above, their pre-crisis averages. And while the April PMI data looks weak relative to the recent past, they point to only a subdued rate of GDP growth, rather than a contraction," they added.
Rising costs pressures
Markit economists also argued in the services PMI survey that such a notable economic deterioration at the moment could lead to the Bank of England (BoE) starting "to worry about the need to revive growth, either by cutting interest rates or through non-standard measures such as QE".
But signs of increasing inflationary pressures could suggest otherwise, given the central bank's fundamental remit to guard over price stability.
All three PMI surveys showed either inflationary pressures picking up, or deflationary pressures easing. The services survey revealed that, mainly due to an introduction of the National Living Wage, inflation rate sped up to a 27-month high in April, "with cost pressures also linked by firms to rising fuel prices and the impact of the weaker pound".
BoE policymakers recently argued that, weighing primarily against the Brexit risks and prolonged uncertainty, one should expect sterling to depreciate further.
"Looking ahead, heightened and prolonged uncertainty has the potential to increase the risk premia investors require on a wider range of UK assets, which could lead to a further depreciation of sterling and affect the cost and availability of financing for a broad range of UK borrowers," the policymakers argued in the BoE Financial Policy Committee (FPC) statement in April.
The BoE's monetary policymakers said in April that the recent depreciation of sterling, if more persistent, should continue to push up on inflationary pressures in the UK this year.