UK economic growth projected to rise slightly on competitive exports

07 February 2017 Consultancy.uk

Growth of the UK economy will hit 1.3% in 2017, up from the previous forecast of 0.8%, according to EY. Economic growth is set to slow in 2018 however, falling to 1.1%. Key factors for the longer-term economic growth are tied to the performance of exports, which remains intimately tied to Brexit deal outcomes.

The latest report from the EY Item Club – a non-governmental economic forecasting body sponsored by professional services firm EY – finds that the considerable drop in the value of the sterling has benefited the UK economy in the short term, allowing the economy to move away from an “over-dependence" on domestic consumer spending in favour of earning from the country’s exports. The firm’s predictions for the 2017 show an annualised growth rate of 1.3%, up from 0.8% previously forecast.

The effect on the economy includes a rise in exports of 3.3% this year, and 5.2% in the year to come. At the same time, consumer spending growth is projected to fall to 1.7% in 2017 and 0.4% in 2018 – as CPI inflation, which is set to hit 3.1% this year and 2% next year, begin to bite.

UK economic growth projected to rise slightly on competitive exports

The effects of Brexit remain a key uncertainty for the UK economy, with a likely ‘hard Brexit’ and its consequences on trade and services (e.g. access to the European market) hard to quantify. The firm notes that the lower pound risks making the UK economy more export dependent, which in turn depends on favourable trade agreements. Growth is expected to pick up slowly, hitting 1.4% in 2019 and 1.8% in 2020.

The EY forecasting group remarks, “It would certainly surprise us if the Article 50 negotiations lead to a nice quick deal. We expect the negotiations to leave the European Union to be tough and prone to setback.”

Peter Spencer, Chief Economic Advisor to the EY ITEM Club, says, “We now expect the impact of Brexit on the UK economy to be shallower, but more prolonged than we did in October. However, there is a sea change coming over the next three years. The fall in the pound will force the economy to be less reliant on consumer spending, leaving growth heavily dependent upon trade performance.”

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