United Kingdom Economic Forecast

UK Economic Forecast

August 27, 2019

The economy unexpectedly contracted in the second quarter, driven by destocking following a surge in inventories in the first quarter, and suppressed fixed investment. More positively, private consumption was upbeat, on decade-high wage growth and solid job gains, while strong public spending also cushioned the fall. Although the external sector contributed to growth, this was driven by plunging imports, as exports contracted amid a tougher global trading environment. Looking to the third quarter, momentum is likely muted. While the services PMI rose in July, it signaled only modest growth, and the manufacturing PMI remained in contractionary territory. That said, robust retail sales in the same month suggest consumer spending is supporting activity in Q3, and an inventory build-up towards the end of the quarter in preparation for a no-deal Brexit could temporarily boost headline GDP.

United Kingdom Economic Growth

Underlying momentum is likely to be meek in H2, held back by soft business investment and weaker growth in key trading partners. However, higher wages and a more expansionary fiscal stance should prop up activity, while inventory changes as firms prepare for a no-deal will likely distort GDP figures. The highly uncertain outcome of Brexit remains the key risk to the outlook. FocusEconomics panelists expect GDP growth of 1.2% in 2019, which is down 0.1 percentage points from last month’s forecast. For 2020, panelists also see the economy expanding 1.2%.

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United Kingdom Facts

Bond Yield0.43-3.04 %Sep 04
Exchange Rate1.23-0.35 %Sep 04
Stock Market7,311-0.26 %Sep 04

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