Is the UK really "shackled to a corpse"?

Over the last year and change, the economic outlook for the Eurozone has improved dramatically while in that same time the UK economic outlook has left much to be desired.

A little over a year ago, Brexit campaigners proclaimed that if the UK did not leave the European Union it would be "shackled to a corpse." A year on from the Brexit-vote and that looks far from the truth as the health of the Eurozone economy looks better than it has in some time. Read our latest economic outlooks for the UK and the Eurozone below.

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Eurozone Economic Outlook

The economic picture is becoming brighter in the Eurozone. Complete data revealed that GDP growth was stronger than previously estimated in the first quarter and recorded the best result in two years. Private consumption grew healthily thanks to an improving labor market and looser fiscal policies, while the external sector also improved. Moreover, growth is broadening across economies and the common-currency bloc is shaking off political concerns. In June, Greece’s creditors agreed to unlock over EUR 8 billion in financing for the country, removing a possible summer default on loan repayments and newly-elected French President Emmanuel Macron won a decisive mandate in legislative elections, giving him the ability to govern effectively. Data for Q2 is also positive: economic sentiment jumped to a near decade-high in June and the unemployment rate fell in April.

Accommodative financial conditions, falling unemployment and a brighter global backdrop will provide tailwinds to growth this year. The FocusEconomics panel sees a solid 1.8% expansion in 2017, up 0.1 percentage points from last month’s estimate. For 2018, growth is seen broadly steady at 1.7%.

United Kingdom Economic Outlook

Prime Minister Theresa May’s “Brexit election” backfired as her Conservative Party lost the parliamentary majority in the 8 June vote. Although the Tories managed to build a coalition government with the Democratic Unionist Party, the result represents a serious setback for May’s hard Brexit stance and it will likely lead to a softer approach. In this regard, at the first day of the Brexit talks on 19 June, the UK apparently capitulated and accepted the EU’s agenda of first discussing citizens’ rights and the “exit bill” before negotiating any trade accord. Meanwhile, the economy is continuing to face the headwinds of the entangled political situation, following Q1’s disappointing performance. In May, house prices slowed further, while consumer sentiment remained firmly entrenched into negative territory. Although the unemployment rate stood at a multi-year low in April, real wages declined in the February-April period, casting a long shadow on the UK’s economic outlook.

The weak government resulting from the June election has added to an already uncertain economic outlook as the country is sailing the uncharted Brexit waters. As a result, uncertainty is deterring investment and consumers are feeling the pinch of rising inflation. The Bank of England’s (BoE) ultra-loose monetary policy stance and healthy global demand, however, will soften the slowdown. Our panelists are forecasting 1.6% growth for this year, which is down 0.1 percentage points from last month’s forecast. For 2018, growth is projected to fall to 1.3%.

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Date: July 11, 2017