UK economic growth looks set to improve gradually as long as Brexit headwinds are lifted from the UK economy and global growth improves.
According to the CBI’s latest economic forecast, GDP growth for over the next two years is set to remain modest at 1.3% in 2019 and 1.2% in 2020. For 2021, the CBI forecasts a somewhat brighter outlook, with growth picking up to 1.8%.
This is based on the assumption that the UK exits the EU by 31 January 2020 and has clear line of sight to an ambitious trade deal, involving alignment with EU rules where essential for frictionless trade along with protection for UK’s world-beating services sector within the existing transition period. (see Notes to Editors for full list of Brexit assumptions).
The main risk to the outlook remains continued Brexit uncertainty, particularly the threat of a No Deal Brexit. On the global front, a further escalation in US-China trade tensions would deliver further hits to world growth and trade, with knock-on impact on the UK economy.
Rain Newton-Smith, CBI Chief Economist, said:
“Business continues to show remarkable resilience after more than three years of crippling uncertainty. In that time, firms have continued to go about their day jobs, playing a vital part in driving economic growth. But they’ve been beset by headwinds. Alongside perennial Brexit uncertainty, they are also contending with softer global demand.
“Should these dual headwinds subside, we expect a gradual pick-up in activity. But the bigger picture is one of fairly modest growth over the next couple of years – growth that should be far better, given the UK’s relative strengths.
“The UK’s potential has been held back by more than a decade of weak productivity growth and stop-start investment. It’s vital that the next government prioritises lifting productivity and living standards by addressing day-to-day business concerns, including reforming the apprenticeship levy, raising UK R&D expenditure and tackling long-term challenges on skills.
“But transforming a lost decade of productivity will only be possible if supported by a good Brexit deal – one that keeps the UK aligned with EU rules where essential for frictionless trade along with protecting the UK’s world-beating services sector, which accounts for 80% of our economy.
“Let’s be clear: a no deal Brexit would put the brakes on UK growth and realise businesses’ worst fears. What’s needed is a clear and committed line of sight to an ambitious deal that will protect the UK’s economy and future prosperity.
“If firms can see a close deal with the EU on the horizon, with no further Brexit cliff-edges to worry about, investment will be unlocked.”