United Kingdom Economic Forecast

UK Economic Forecast

December 20, 2019

The economy appeared to perform poorly in the fourth quarter, as elevated political uncertainty weighed on activity. Both the services and manufacturing PMIs were in contractionary territory in the period, with firms blaming Brexit and weak external conditions for the soft patch. The labor market, however, remained a chink of positivity: In August–October, employment returned to growth and wage gains were robust, which should be supporting private consumption somewhat. Meanwhile, in politics, the Conservative Party won an absolute majority in the December elections. As a result, the UK should leave the EU by end-January, and the new administration will likely implement fiscal stimulus, supporting economic activity. However, the government’s recent decision to legislate against an extension to the transition period—which will run until end-2020—leaves the possibility of a no-deal exit next year, which will keep investment muted.

United Kingdom Economic Growth

The economy is likely to grow moderately next year. While a looser fiscal stance should aid momentum, lingering uncertainty over the future of the UK-EU trading relationship and the possibility of a no-deal exit at end-2020 will contain business investment. A possible unravelling of trade negotiations with the EU and global trade tensions pose downside risks. FocusEconomics panelists expect GDP growth of 1.1% in 2020, which is up 0.1 percentage points from last month’s forecast, and 1.4% in 2021.

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United Kingdom Facts

Value Change Date
Bond Yield0.83-3.04 %Jan 01
Exchange Rate1.33-0.35 %Jan 01

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