The U.K.'s Economic Outlook Is Getting Rosier

Sep 18, 2017

Bank of England officials aren’t the only ones feeling a bit more bullish about the U.K. economy.

The Centre for Economics and Business Research upgraded its outlook for the nation’s economy Monday, citing a pickup in manufacturing and a view that the worst of the consumer-spending squeeze has passed. The group now expects U.K. growth of 1.6 percent this year and 1.4 percent in 2018, an increase from 1.3 percent and 1.2 percent, previously.

The revision comes after BOE policy makers said last week that they’re headed toward raising interest rates for the first time in more than a decade, noting that while Brexit still poses a risk, data since their last decision points to a “slightly stronger picture than anticipated.”

Gertjan Vlieghe, regarded as one of the more dovish members of the Monetary Policy Committee, doubled down a day later, saying that data suggested “we are approaching the moment when bank rate may need to rise.”

By the end of the week, the pound had climbed about 3 percent, markets were fully pricing in a rate increase by February -- a year earlier than previously seen -- and Barclays, Deutsche Bank and Scotiabank were among those forecasting a hike in November.

“U.K. economic growth has unquestionably slowed from the rates seen throughout much of 2016,” said Nina Skero, head of macroeconomics at the CEBR. “Many have mistaken recent headwinds for a full-blown storm.”

One of the major drags on growth in the first half was a slowdown in consumer spending, as faster inflation and subdued wage increases squeezed Britons’ pockets -- pressures which the CEBR say should now start to ease. The group also expects a “comprehensive interim deal with the EU,” boosting the economy beyond 2018, although it does admit that a sustained decline in net migration could cause “seriously damage.”

Source: Bloomberg Marekt