World Economy

UK Will Avoid Recession

Positive market sentiment was bouncing back after Brexit,  with fewer people taking shelter in safe haven assets
Warm weather boosted clothes sales and the pound’s plunge tempted overseas buyers to splash out on luxury items such as watches and jewelry.Warm weather boosted clothes sales and the pound’s plunge tempted overseas buyers to splash out on luxury items such as watches and jewelry.

Credit ratings agency Moody’s expects modest growth in the UK economy, with forecasts now looking more positive, just two months after the Brexit vote rattled markets.

In its assessment of the global economy, the ratings agency revised forecasts for the UK and now expects the gross domestic product to nudge up 1.5% in this year and 1.2% in 2017, Brietbart News quoted Moody's report as saying.

Previously, it had estimated the UK economy to grow 1.8% in 2016, and 2.1% next year.

These findings come after the National Institute for Economic and Social Research predicted the British economy would decline by 0.2% between July and September this year.

NIESR also warned there is an “even” chance of the UK dipping into a recession by the end of 2017.

Moody’s expected “limited” Brexit-related spillovers into the eurozone. However, the report predicted some deterioration in the eurozone and maintained its growth forecast at 1.5% for 2016 and 1.3% next year.

Moody’s Investors Service stated growth in advanced economies will remain at low levels, but will be stable.

Lloyds Bank, which looked at the levels of investor confidence in the UK, saw that positive market sentiment was bouncing back after Brexit, with fewer people taking shelter in “safe haven” assets.

Madhavi Bokil, senior analyst at Moody’s, said uncertainty around the future of the economy outside the common market will dampen business investment and consumer spending over the second half of this year and throughout 2017.

However, she noted falls in sterling will mitigate some of the negative effect in the short-term by providing a boost to exports.

“Our baseline growth forecasts also incorporate the assumption that some fiscal loosening and monetary policy accommodation will support the economy, limiting the slowdown in growth.”

Earlier this month, the Bank of England launched a number of measures, including the first base rate cut in seven years, as it looked to prevent a recession.

Moody’s analysis also warned that a material correction in asset prices, a house price downturn, or a large decline in consumption, could represent downside risks to the forecast for the UK.

Consumer Confidence

Shoppers in Britain shrugged off June's shock Brexit vote as retail sales jumped by much more than expected last month, adding to signs there has been little immediate hit for consumers.

Warm weather boosted clothes sales and the pound's plunge tempted overseas buyers to splash out on luxury items such as watches and jewelry, official data showed on Thursday.

These are the first official figures to shed light on how consumer demand has performed since the unexpected decision by voters to leave the European Union in the June 23 referendum.

Data released earlier this week also showed little immediate impact of the Brexit vote on the labor market but there were signs of inflation pressures building after the plunge in sterling, which could eat into the spending power of households going forward.

Sentiment surveys have shown levels of concern, but actual retail sales volumes surged 1.4% in July compared with June, the Office for National Statistics said, topping all forecasts in a Reuters poll that pointed to a much smaller rise of 0.2%.

"Inflation is starting to rise and will continue to do so due to the steep fall in sterling, meaning that real household income growth will weaken. This is likely to limit retail sales growth in coming quarters."

The ONS retail sales figures are volatile and Bank of England policymakers will want to see more than one month's data before drawing firm conclusions about the health of consumer spending—a key pillar of British economic recently.

But the long-running GfK survey—the main measure of consumer morale and an indicator of future household spending over the years—suffered its sharpest drop since 1990 last month.

Compared with a year earlier, July sales growth jumped to 5.9%, the biggest rise since September of last year and far stronger than the 4.2% forecast, Thursday's data showed.