According to KPMG UK’s quarterly Economic Outlook Report: the UK economy is set for modest growth if a positive Brexit deal can be reached with the EU. KPMG predicts that UK GDP will grow by 1.3% in 2018 and 1.4% in 2019. This will mark the lowest rate of growth since 2008 and 2009. These figures are based on an assumption that the UK government will achieve a relatively friction-free Brexit and transition deal. If a disorderly Brexit were to occur, KPMG predicts a rapid slowing of growth to 0.6% in 2019 and 0.4% in 2020.
The report also finds that Brexit uncertainty is not the only factor inhibiting growth. Poor productivity continues to be a drag, and businesses are finding it increasingly difficult to recruit because of dwindling spare capacity. The manufacturing sector is still seeing low export levels despite the weakness of the pound, and retailers in particular continue to face a challenging environment. In addition, despite high employment levels, the reports predicts workers can expect pay growth of around 3%.
Explaining the report Yael Selfin, Chief Economist at KPMG UK, commented: “Brexit will have a lasting effect on the UK, but economically it isn’t the only game in town. Issues such as improving productivity, reducing regional economic disparity, and ensuring that UK workers have the skills to meet employers’ needs should also be at the forefront of the Chancellor’s mind. Bringing productivity growth back to pre-2008 levels alone could see the British economy grow by more than 2%.
“If negotiations between the EU and UK result in a relatively friction-free agreement, then growth is likely to remain around 1.4% in the medium term as a result of relatively weak productivity. If we see a disorderly Brexit, growth will obviously slow more dramatically. If negotiations end well, the MPC are likely to raise interest rates to 1% at the tail end of 2019. If no deal is reached, the MPC will need to use interest rates to soften the economic impact.”
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