UK economic growth tipped to decline to slowest pace since 2009 recession

union-jack-with-economy-and-growth-puzzle-pieces-connected

Although gloomy predictions that had predicated the UK economy would spiral into recession in the event of a Brexit vote look wide of the mark, 2017 looks set to be a tough year, argues a respected economic think-thank.

The Centre for Economics and Business Research (Cebr) has pencilled in economic growth of 0.8 per cent this year, which represents the slowest pace since the 2009 recession.

The forecast hinges on inflation rising to 2.7 per cent in 2017, which the think-tank says will force consumers to tighten their belts. Consumer spending is a key growth driver that has helped the UK economy put on a resilient showing since last June's referendum.

Nina Skero, managing economist at Cebr, says the UK is set for a 'difficult year'. According to Skero new challenges such as rising inflation will combine with existing ones including weak wage and productivity growth.

CAUTIOUS OPTIMISM

She adds that a slowdown in business investment will also materialise, due to uncertainty over how Britain's divorce negotiations from the European Union will pan out once Article 50 is triggered.

More positive, however, is the health of the labour market, with unemployment at low levels, currently 4.9 per cent, according to the Office for National Statistics (ONS).

When Mark Carney became governor of the Bank of England in the summer of 2013, the UK's unemployment level stood at 7.8 per cent. At the time Carney said he would not consider raising interest rates until the unemployment rate dipped below 7 per cent.

In addition, the Cebr notes the weak pound will continue to provide a boost for Britain's manufacturers, as their now cheaper goods attract the attention of overseas buyers.

'A simultaneous consumer and business investment slowdown will leave the economy without two key growth drivers, but there are some reasons for cautious optimism,' adds Skero.

Paul Hollingsworth, UK economist at Capital Economics, says a batch of new statistics released on Wednesday (11 January) by the ONS indicate that the UK economy starts 2017 in a strong position.

'The figures showed industrial production rose by a monthly 2.1 per cent, well above the consensus expectation of a 1 per cent rise. Admittedly, this largely reflects a rebound in the oil and gas sector.

'But manufacturing also rose by a solid monthly 1.3 per cent, more than reversing the previous month's 1 per cent fall,' says Hollingsworth.

On the face of it, the latest trade figures were disappointing, adds Hollingsworth. The overall trade deficit widened by £2.6 billion between October and November, to reach £4.2 billion.

Nevertheless Hollingsworth says the latest figures suggest that 'economic growth has maintained pace, and is starting to become better balanced'.


Subscribe to Money Observer magazine

 

Comments

Post new comment

The content of this field is kept private and will not be shown publicly.
By submitting this form, you accept the Mollom privacy policy.