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United Kingdom Economic Forecast

United Kingdom Economic Outlook

After flatlining in Q4, the economy is expected to shrink quarter-on-quarter in Q1 on rising interest rates, elevated inflation and the tough base effect created by December’s sharp GDP decline. However, recent data suggests there are upside risks to this projection; economic activity beat market expectations in January, and the private-sector PMI indicated improving operating conditions in February–March. Moreover, robust employment growth and improving consumer sentiment in January–February should be aiding private spending. The government presented the spring budget in mid-March, which contains fiscal loosening worth around GBP 16 billion annually in the next five years. Measures include investment incentives, a fuel duty freeze, higher defense spending, an extension of the energy price cap and steps to boost labor market participation. The budget should boost both near- and medium-term output.

United Kingdom Inflation

Inflation rose above market expectations to 10.4% in February (January: 10.1%). Price pressures will ease later this year on soft economic momentum, milder commodity price pressures a tougher base effect. Moreover, the extension of the energy price cap through June will tame energy prices. However, inflation will remain above the Bank of England’s (BoE) 2.0% target.

United Kingdom Economic Data

2017 2018 2019 2020 2021
Population (million) 66.0 66.4 66.8 67.1 67.4
GDP (USD bn) 2 2 2 2 3
GDP per capita (USD) 40 43 42 40 46
GDP (GBP bn) 2 2 2 2 2
Economic Growth (Nominal GDP, ann. var. %) 4.3 3.5 3.8 -5.8 7.6
Economic Growth (GDP, ann. var. %) 2.4 1.7 1.6 -11.0 7.6
Domestic Demand (ann. var. %) 1.5 1.8 1.9 -12.3 8.8
Private Consumption (ann. var. %) 1.9 2.5 1.1 -13.2 6.2
Government Consumption (ann. var. %) 0.4 0.3 4.1 -7.3 12.5
Fixed Investment (ann. var. %) 3.5 -0.2 1.9 -10.5 6.1
Exports (G&S, ann. var. %) 6.8 3.1 1.7 -12.1 2.2
Imports (G&S, ann. var. %) 3.3 3.3 2.6 -16.0 6.2
Industrial Production (ann. var. %) -0.2 3.3 2.3 1.3 7.3
Retail Sales (ann. s.a. var. %) 1.8 2.4 3.2 -1.8 5.3
Home Prices Index (ann. var. %) 4.5 3.3 0.9 2.8 8.8
Disposable Income (ann. var. %) 1.1 2.4 2.1 -1.3 1.2
Wages (ann. var. %) 2.3 3.0 3.4 1.8 5.9
Unemployment (% of active population, aop) 4.4 4.1 3.8 4.6 4.5
Fiscal Balance (% of GDP) -2.5 -2.2 -2.5 -13.1 -8.0
Public Debt (% of GDP) 86.6 86.1 85.5 105.6 105.9
Money (ann. var. of M2 %) 3.1 3.8 3.9 14.3 6.6
Inflation (CPI, ann. var. %, eop) 3.0 2.1 1.3 0.6 5.4
Inflation (CPI, ann. var. %, aop) 2.7 2.5 1.8 0.9 2.6
Inflation (PPI, ann. var. %, aop) 3.9 3.4 1.4 -1.0 5.2
Bank Rate (%, eop) 0.50 0.75 0.75 0.10 0.25
SONIA Rate (%, eop) 0.41 0.70 0.71 0.04 0.19
10-Year Gilt Yield (%, eop) 1.19 1.27 0.82 0.20 0.97
Exchange Rate (USD per GBP, eop) 1.35 1.27 1.32 1.37 1.35
Exchange Rate (USD per GBP, aop) 1.29 1.33 1.28 1.28 1.38
Exchange Rate (EUR per GBP, eop) 1.13 1.11 1.18 1.12 1.19
Exchange Rate (EUR per GBP, aop) 1.14 1.13 1.14 1.13 1.16
Current Account Balance (USD bn) -96.9 -117.1 -80.8 -86.6 -46.9
Current Account Balance (% of GDP) -3.6 -4.1 -2.8 -3.2 -1.5
Merchandise Trade Balance (USD bn) -181.8 -191.1 -189.1 -171.3 -232.7
Foreign Direct Investment (USD bn) 96.4 87.8 45.5 18.2 27.6

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