The UK economy is slowing but still doing well

While the UK economy is still doing well we have fallen down the G20 growth league as others have caught up. The UK is growing at a rate that could be reasonably expected. The National Institute of Economic and Social Research (NIESR) reported that the UK grew at 0.5% in the three months to the end of October meaning a 1.7% growth on a year on year basis. It may be true that without the Brexit uncertainty that these figures may be higher but exports have risen by 5.4% on the back of a devalued pound. The NIESR predicts that UK GDP will hit 1.6% by the end of 2017 and 1.7% for both 2018 and 2019. The 5 year prediction is 1.5% assuming a relatively smooth withdrawal from the EU which is their expectation.

The Office of Budget Responsibility (OBR) said in its Economic and Fiscal Outlook report produced for the recent Budget that the impact of lower productivity means that real GDP growth will slow from 1.5% this year to 1.4% in 2018 and 1.3% in 2019 as public spending cuts intensify and Brexit-related uncertainty bears down on activity.

This more downbeat forecast for the UK’s economic future is similar to the figures produced by the European Commission (EC). The EC forecast that the EU as a whole will enjoy 2.2% growth in 2017 and 2.1% in 2018, while the UK will slow to 1.5% this year and 1.3% in 2018. The EC view is substantially more downbeat than that of the Bank of England (BoE) who predicts growth of 1.7% this year and the next three years. The BoE predict that the UK jobless rate will fall to 4.2% and stay there for several years while the EU expect the unemployment rate to rise to 4.9% by the end of 2019.

UK company earnings forecasts have been upgraded with UK domestically orientated stock set to deliver earnings growth into double figures. The UK industrial and manufacturing output continues to grow but our trade deficit in goods and services widened in Q3 2017 due to increased imports of machinery. The very competitive value of sterling and healthy global demand is helping UK manufacturers compete in global markets. Foreign companies are switching their sources of supply to the UK due to the weakness in the GBP. Some economists argue that the devaluation in sterling was needed and is a good thing that should continue for the benefit of the country. The currency valuation benefit is boosting business but we do not know the future direction of sterling as the Brexit negotiations conclude.

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