UK economic growth likely to improve if 'Hard Brexit' is avoided, says Berenberg

The United Kingdom’s economic growth is expected to improve if a 'Hard Brexit' can be avoided, according to a recent research report from Berenberg. Uncertainty is weighing on households and business, causing less robust spending and soft investment until the post-Brexit outlook becomes clearer.

If Britain avoids a no deal hard Brexit, the ongoing recovery in real wages can underpin a pick-up in real private consumption. Domestic inflationary pressures will build over time; further, a 25bp rate hike in August this year can take place if the UK avoids a hard Brexit.

The downside near-term risks include: 1) Weaker global growth could further weigh on trade, 2) a hard Brexit (20 percent risk) could disrupt short-term trade and investment and depress long-term growth, and 3) Brexit delay extends the hard Brexit risk beyond Q2 and weighs on H2-2019 growth

Meanwhile, better-than-expected real household consumption growth amid continued strong gains in wage growth, and helped by the planned income tax cut in April, could lift medium-term real GDP growth above current expectations.