A smooth Brexit next year would mean that the UK can expect steady
economic growth, with an improvement in business investment and
continuing export growth over the next two years. That’s according
to the CBI’s latest economic forecast.
Underlying growth in the UK economy has largely evolved in line
with the CBI’s expectations over the last 6 months. The leading
business group is now predicting GDP growth of 1.3%
for 2018, 1.4% in 2019 and 1.6% in 2020. The forecast
was carried out on the basis of the UK successfully securing an
orderly Brexit in 2019, with the Government’s Withdrawal
Agreement being ratified.
Key drivers of the growth forecast include:
- A gradual improvement in quarterly household spending growth
(1.4% - 2018, 0.8% - 2019, 1.4% - 2020), as real earnings start
to show more signs of life
- Business investment growth to pick up modestly from a poor
2018, as Brexit uncertainty lifts and the impact of spending on
automation becomes more prominent (-0.5% - 2018, 0.3% - 2019,
1.7% - 2020)
- Slightly more support from government consumption, following
announcements of increased spending on the NHS in the last Budget
(0.6% - 2018, 1.8% - 2019, 2.0% - 2020)
- Exports to continue growing, supported by firm global growth
(1.4% - 2018, 3.0% – 2019, 3.1% - 2020). But a corresponding pick
up in import growth (0.4% - 2018, 1.9% - 2019, 2.8% - 2020) means
that support from net trade fizzles out over our forecast.
Carolyn Fairbairn, CBI Director-General, said:
“An orderly Brexit next year would see the UK enjoy steady
economic growth for the next couple of years. But as the range of
recent impact studies show, a no deal scenario would blow these
figures out of the water, severely hurting businesses, jobs and
living standards.
“The Government’s deal is not perfect. But it is the only offer
on the table that can protect our economy, reduce uncertainty and
open up a route to a decent trade deal in the future.
“Business has proved resilient in the face of great uncertainty
ever since the referendum. Now – with no deal still a real
possibility – nearly all firms with contingency plans will be
advancing them by Christmas in the absence of some resolution to
the Brexit process.
“Brexit has sucked the oxygen from the domestic agenda, where
there are urgent issues to address. Crucially, improvements in
people’s wages will only be sustainable with higher productivity.
So firms will want to see the Industrial Strategy accelerate in
2019 and for the Government to use its' Spending Review to set
out a roadmap for delivering on its R&D spending target in
partnership with business.”
Real wage growth is expected to recover, as inflation continues
to fall back and a tight labour market pushes earnings growth a
little higher. But continually weak productivity will limit the
degree of any rise in living standards. As a result, we expect
both real wage and household spending growth to remain below
their pre-crisis norms.
Business investment growth is expected to remain subdued, as
uncertainty around the end-state of the UK’s relationship with
the EU puts the brakes on large-scale capital spending. But a
modest pick-up is expected over the forecast, as uncertainty
lifts - based on the assumption of further progress in
negotiations - and the full impact of greater automation spending
starts to kick in.
The global economy has seen solid growth, despite momentum
slowing later in the year so far. While the CBI expects global
growth to remain firm – supporting UK exports – risks to the
outlook have risen. These include a further escalation in trade
protectionism, the prospect for further volatility in oil prices,
and financial markets being hit by further interest rate rises in
the US, weighing on emerging markets.
With the Bank of England indicating a path of gradual and limited
interest rate rises ahead, the CBI forecasts that they will reach
1.5% by mid-2020 (from their current level of 0.75%), after which
we expect the Bank to turn its attention to unwinding some of its
post-crisis asset purchases.
