UK: Near-term growth subdued – ABN AMRO

Bill Diviney, senior economist at ABN AMRO, suggests that with Brexit delayed at least until January, and uncertainty probably persisting for much of next year, they expect only a mild recovery in UK’s investment and solid, if unspectacular growth in private consumption.

Key Quotes

“Key risks for the near-term outlook will be 1) whether recent signs of labour market weakness develop into a more significant downturn, and 2) how quickly planned government spending increases might come on stream. The latter naturally will depend on the election outcome, but both Conservatives and Labour are promising big spending increases, despite high levels of government debt – with Labour promising to outspend the Conservatives, perhaps significantly. This should lift growth later in 2020 and into 2021, by which time we expect growth to be closer to trend.”

“The medium term outlook is less positive, given how weak UK macro fundamentals are. With businesses paralysed by Brexit uncertainty and investment flatlining for the past two years, productivity growth is suffering.”

“Things are scarcely better on the household side; while consumer confidence has held up better than business confidence, and real wage growth has picked up, household balance sheets are in a parlous state, with household debt not far off pre-recession highs at 90% of GDP, and the savings rate just shy of historically low levels. This makes households highly vulnerable to any downturn.”