Menu

Search

  |   Commentary

Menu

  |   Commentary

Search

U.K. economic growth likely to decelerate to 1.6 pct by end-2017 – Nordea Bank

The economic growth of U.K. has performed better than anticipated after the Brexit vote last year, underpinned by the looser monetary and fiscal policy, solid global growth and a weaker British pound. However, the U.K. economy recorded its most subdued performance in one year during the first quarter of this year. It grew just 0.3 percent quarter-on-quarter and 2.1 percent year-on-year following a 0.7 percent rise in the prior quarter. The services industry, which contributes nearly 80 percent to the economy, expanded only 0.3 percent, indicating that consumers are not lowering their spending due to increasing prices.

Meanwhile, the composite PMI has dropped in recent months, whereas retail sales volumes recorded their largest drop in seven years in the first quarter, indicator that the U.K. economy is beginning to lose momentum following the Brexit vote, stated Nordea Bank in a research report.

The subdued retail sales bodes ill for the U.K. economy that depends heavily on consumer spending as the main driver of growth following the Brexit vote. Consumer spending growth has been mainly driven by households borrowing more and saving a smaller share of their income than before since the referendum last June. Households had cut their saving rate to just 3.3 percent in the fourth quarter of 2016.

Given this background, a moderation in real GDP growth this year appears likely as accelerating inflation continues to hurt households’ real income growth and spending. Real wage growth has dropped to just 0.3 percent in February, the lowest since September 2014. Growth in employment has been halved after the Brexit vote. The jobless rate is expected to rise from current 4.7 percent to about 5 percent by the end of 2017, stated Nordea Bank. Meanwhile, a fall in business investment is also expected to weigh on the GDP growth in years ahead.

“Overall, our forecast is for real GDP growth to ease from 1.8 percent last year to 1.6 percent in 2017 and 1.3 percent in 2018”, added Nordea Bank.

  • Market Data
Close

Welcome to EconoTimes

Sign up for daily updates for the most important
stories unfolding in the global economy.