United Kingdom Economic Forecast

UK Economic Forecast

September 25, 2018

The economy has performed better than expected so far in the third quarter. Economic growth was robust in July, driven by the services sector. In addition, both consumer confidence and the services PMI rose in August, while retail sales in the first two months of Q3 have been strong. Moreover, the labor market is in rude health; the unemployment rate remains at a multi-decade low, and in the May–July period there were signs that this tightness was beginning to feed through to wages. However, economic figures in recent months have likely been flattered by unseasonably warm weather. Furthermore, although service activity is holding up, the manufacturing sector is losing steam as the competitiveness boost from the weaker pound fades, with the manufacturing PMI falling to an over two-year low in August. On the political front, the recent Salzburg summit highlighted the substantial disagreements between the EU and the UK over important aspects of Brexit negotiations. Both sides are looking to make substantial progress before another key EU summit on 18 October.

United Kingdom Economic Growth

Growth will likely be fairly limp going forward, as temporary factors which have propped up the economy in recent months subside, fixed investment continues to be depressed by Brexit uncertainty and export growth slows after the temporary 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 the key downside risk. Our panelists estimate GDP growth of 1.3% in 2018 and 1.4% in 2019, unchanged from last month’s forecast.

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United Kingdom Facts

Bond Yield1.42-3.04 %Oct 18
Exchange Rate1.30-0.35 %Oct 18
Stock Market7,027-0.26 %Oct 18

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