U.K. Set for Slowest Growth in a Decade in 2020, Item Club Says
U.K. economic growth is set to slow to the weakest pace in a decade next year, leaving Bank of England policy makers on hold through to 2021, according to the EY Item Club.
The forecaster will say on Monday that GDP will increase 1% in 2020, down from a projection of 1.5% made in July, due to the weaker global environment and elevated political uncertainties in the U.K. Estimates for growth out to 2023 will also be cut, with the group citing the potential for higher non-tariff barriers to trade with the European Union under U.K. plans to seek a free-trade agreement.
The Item Club’s view is partly grounded in a warning that consumer spending could be on the wane, forecasting the weakest performance since 2011 this year. It sees no relief for business investment either, which it predicts will contract 1.3% and remain flat in 2020.
Any pickup after Brexit will be “gradual and limited,” it said. Exports will be damped by a more challenging global economic and trading environment, growing 1.1% in real terms in 2020 after a contraction of 0.1% in 2019.
That all points to any move on interest rates next year being a cut, although the BOE is more likely to keep the benchmark unchanged at 0.75% in the absence of any “major downward lurch” in the economy, the forecaster said. It expects a more dovish tone to the minutes of the Nov. 7 decision and for officials to trim their 2020 growth projection.
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