Election hit to confidence reduces GDP growth by 0.4% in both 2017 and 2018

July 3, 2017

NEWS RELEASE

Election hit to confidence reduces GDP growth by 0.4% in both 2017 and 2018

 

– The political uncertainty created by the indecisive election outcome will dampen short term performance though growth might recover post-2018.

– Cebr now expects the economy to grow by just 1.3% this year and 1.2% in 2018.  

– This will make 2018 the year with the slowest GDP growth since 2009.

– Lower consumer spending and business investment will be behind the slowdown.

– We expect that a deal with the rest of the EU will emerge in the coming years and that confidence will rebound, leading to stronger growth post-2018.

– We forecast growth of 1.6% in 2019 and 1.9% in 2020.  

 

New forecasts by leading economics consultancy Cebr – the Centre for Economics and Business Research – show that the UK economy will grow by just 1.3% in 2017. This marks a substantial downward revision from our April forecast of 1.7% growth.

 

The forecast for 2018 has also been revised down to 1.2% compared with an expectation of 1.6% in April.

 

The newly-created political uncertainty is likely to lead to an economic slowdown this year and next via lower business investment and weaker consumer spending.

 

Meanwhile, uncertainty about not only politics but also Brexit will hold back business investment.

 

Against this background we now think that the MPC will not raise interest rates until the end of 2018 rather than earlier in the year as in our previous forecast.

 

The indecisive election outcome has also damaged consumer confidence. Last week’s results from the YouGov/Cebr Consumer Confidence Index show that sentiment fell from 109.1 in the week before the election to 105.2 in the fortnight after it. Consumer spending growth is likely to be only 1.5% this year compared with 2.8% in 2016. And a further fall to 0.8% is likely for next year.

 

Cebr expects GDP to expand by 1.6% in 2019 and by 1.9% in 2020. This marks an upward revision from our pre-election forecasts of 1.5% and 1.8% reflecting our increased expectation of a deal with the rest of the EU on Brexit.

 

Nina Skero, Head of Macroeconomics at Cebr, says, ‘Our data on confidence show that the newly-created political uncertainty is highly likely to weigh on growth in the short term. This means that we now do not expect an interest rate rise until the end of 2018.

 

‘But we now think that a deal with the EU on Brexit is more likely than previously seemed which will benefit both the UK and the remaining members of the EU. We have therefore revised up our forecasts for growth for the period from 2019 onwards.’

– ENDS –

 

Notes to editors:

 

Cebr is a leading independent commercial economics consultancy with particular strengths in macroeconomic and market forecasting. The report has been authored by Cebr staff. For more information, please contact:  Nina Skero 020 7324 2876 OR   nskero@cebr.com. For any enquiries over the weekend, please call  +44 (0)75 5737 3931.

 

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