UK growth to slow rapidly amid ‘worrying signs’
In a report called “Fork in the road”, the broker projects UK GDP will grow 1.5% this year, and then slow rapidly “with a below consensus forecast of 0.9% in 2018”.
“There are worrying signs for the UK consumer,” Mr O’Leray said. “Rising inflation, to 3%, is expected to make a meaningful dent in real disposable incomes, while the savings ratio is already at all-time lows.
"A dichotomy currently exists between UK consumers’ attitudes of their own financial situation and the wider economic climate. That is likely to change as disposable income growth falls. Consumer spending growth of 1.2% is anticipated for 2017, slowing to just 0.5% in 2018.”
Investment in the British economy hasn’t collapsed, but remains low, while manufacturing has benefited from the fall in sterling but accounts for a small part of the economy, the economist said. Official figures show the British economy slowed sharply in the first three months of 2017 as households and high streets felt the pinch from higher inflation, which has risen sharply since last year’s Brexit vote.
With the country heading for an election on June 8, there were other signs of a slowdown as house prices fell for a second month and a measure of consumer confidence dipped. The UK’s Office for National Statistics said growth in the overall economy weakened to a one-year low of 0.3% in the three months to March from 0.7% in late 2016.
Last year, Britain vied with Germany to be one of the fastest-growing of the world’s major advanced economies with annual growth of 1.8%, defying widespread predictions of recession after the vote to leave the EU.
But the new figures are the clearest sign so far that the country is slowing after the Brexit vote and in the run-up to the early election called by Prime Minister Theresa May.
UK house prices also fell in April as buyers face Brexit pinch British growth last year relied heavily on consumer spending -- to the extent that household saving fell to a record low -- while the boost some exporters have felt from a weaker currency has yet to revive the economy as a whole.
Despite the pick-up in inflation, the Bank of England is widely expected to keep interest rates at their record low of 0.25% as it waits to see the full impact of Brexit on the country’s economy.
