With prolonged uncertainty over Brexit and global headwinds taking their toll, Britain’s economic growth is expected to slow considerably next year. It was announced last week that the GDP has contracted 0.2 per cent, prior to that audit firm KPMG had said it expected UK GDP to reach 1.4 per cent this year, falling to 1.3 per cent in 2020 — down 0.2 per cent since its last forecast in March.
Brexit-related stockpiling in the first quarter helped boost trade in goods with EU countries and manufacturing. KPMG said it does not expect these levels to persist for the rest of the year. The report said it expects services to remain the main pillar of growth, but said it does “not foresee any exceptional strength there either”.
Chief economist at KPMG, Yael Selfin, said: “Recent weeks saw the gathering of clouds over the global horizon, with growing talk of a possible recession. The UK now has to consider the global backdrop a headwind.” He added: “Back home, Brexit has not left the top of the domestic agenda, and the veil of uncertainty will continue to exact real damage on the UK economy. Our forecasts see weakening domestic momentum in the short term with a big downside if the UK leaves the EU with no deal.”
The report said a strong labour market and rising pay would continue to support consumer spending. “This will be the main driver of economic growth over the next two years, with households’ spending forecast to grow at 1.5 per cent this year before moderating to 1.2 per cent in 2020,” it said. However, business investment is likely to lag as companies delay spending in anticipation of a final Brexit settlement.
Investment is expected to grow 1.6 per cent this year on the back of a strong first quarter, but it has been downgraded from 1.6 per cent to 1.1 per cent in 2020. “In addition to Brexit, the UK economy faces two urgent challenges it needs to address: low productivity and inequality of opportunity,” Selfin said alongside the report. He added: “They represent a ticking time bomb which, if not defused early, will relegate the UK to the bottom of the league.”
Two of Britain’s biggest business groups had given an early warning of dismal growth for the second quarter of this year as political turmoil and rising costs take a heavy toll on the UK economy. Downbeat forecasts for the health of the country’s private sector have been laid bare by the British Chamber of Commerce (BCC) and the Confederation of British Industry (CBI), after months of uncertainty over Britain’s imminent departure from the European Union.
The UK’s manufacturing sector suffered a slowdown in the second quarter while services saw little improvement, prompting experts at the BCC to estimate that there was “minimal GDP growth in the second quarter of 2019”. According to the BCC, the balance of manufacturing firms reporting improved domestic orders slumped to a seven-year low in the last three months.
The figures come as a quarterly survey released by the CBI found that optimism regarding the overall business situation in the financial services sector has continued to fall. Overall business volumes stabilised after two quarters of consecutive falls, the CBI said, but the greatest drag on growth came from the general insurance, banking – which saw the fastest fall in growth since September 2013 – and investment management sectors.
The gloomy findings also echo another CBI forecast which found underlying growth would “remain subdued with risks from Brexit and global trade tensions remaining high.” The CBI said private sector activity in the three months to June had contracted at the quickest pace since September 2012, with the balance of firms reporting growth at minus 13 per cent.
CBI chief economist, Rain Newton-Smith, said: “There are some temporary factors pushing down activity at the moment, such as companies adjusting their stocks following the Brexit extension, interruptions to car production and poor weather. But underlying activity and confidence is clearly subdued.”
Head of economics at the BCC, Suren Thiru, said figures last month “indicate that underlying economic conditions in the UK remain decidedly downbeat, with intensifying uncertainty over Brexit, the rising costs of doing business in the UK and a sluggish global economy combining to suppress key drivers of growth.
(ANDY JALIL is our foreign correspondent based in the UK. He can be reached at andyjalil@aol.com)
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