United Kingdom Economic Forecast

UK Economic Forecast

July 24, 2018

The economy appears to have picked up steam in Q2, but growth was likely still mediocre. Monthly GDP data for April and May shows the economy was supported by a solid expansion in the services sector, particularly wholesale and retail trade. However, this was at least partly due to a prolonged period of good weather boosting consumer spending. The strong performance of the services sector appears to have carried over to June, with the services PMI reaching its highest level since Q4 2017. The labor market paints a mixed picture; although the employment rate is at an all-time high, wage growth dipped in March–May. Coupled with pessimistic consumer sentiment, this suggested the recent upturn in consumer spending may not last. On the political front, the cabinet finally agreed on a common Brexit stance in early July. However, domestic political instability has subsequently increased, and the EU is likely to have serious objections to the government’s plans for the future trading arrangement.

United Kingdom Economic Growth

Looking ahead, growth will be subdued, with fixed investment depressed by Brexit uncertainty and export growth slowing after the boost provided last year by the weaker pound. However, a slight pick-up in government spending should provide some support. A failure to reach a Brexit agreement with the EU before the UK departs in March 2019 is a substantial downside risk. Our panelists estimate GDP growth of 1.3% in 2018, down 0.1 percentage points from last month’s forecast, and 1.4% in 2019.

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United Kingdom Facts

Bond Yield1.33-3.04 %Aug 07
Exchange Rate1.29-0.35 %Aug 07
Stock Market7,718-0.26 %Aug 07

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