U.K. Set for More ‘Uninspiring’ Growth After Weak Start to 2018
(Bloomberg) -- The U.K. economy shows little sign of breaking out of its “pattern of uninspiring growth,” and the first quarter may have been weaker than expected.
The first three months of the year may have seen gross domestic product gain as little as 0.2 percent as severe weather cramped growth, a report by the EY Item Club will say Monday. That’s below the 0.3 percent estimate of economists before the initial reading of the data, which will be published Friday. It also downgraded its annual forecast to 1.6 percent, from 1.7 percent previously.
While the Item Club expects two Bank of England interest-rate increases this year and a further two in 2019, it said there remains uncertainty around the outlook for policy. Governor Mark Carney on Thursday pushed back against the high expectations for tightening at the May 10 meeting, pointing out that there are other opportunities.
“Raising interest rates this year is not an open and shut case,” said Howard Archer, chief economic adviser to the EY ITEM Club. “With inflation heading down and the Bank of England’s view of the supply-side of the economy arguably too pessimistic, two rate hikes this year risk exerting unnecessary pressure on consumers.”
The report said that while households should see a “double positive” for real-income growth from weakening inflation and rising pay, spending will still slow this year. It’s a bleaker picture for exporters too, as they lose the competitive advantage afforded by the pound’s slump following the 2016 Brexit vote and protectionism weighs on global growth.
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