UK Economy Will Struggle Past 2018

The UK economy will continue to struggle for the rest of this year and the next, Ernst & Young’s Item Club says.

The latest autumn forecast said GDP was running at about 0.3% to 0.4% during the last quarter, compared to 0.3% in the first two quarters of the year, Economia reported.

Annual inflation in the UK accelerated to 3% in September, the Office for National Statistics said Tuesday, the fastest pace of growth in prices for goods and services since early 2012.

With inflation now at 3%, the economists said that businesses were likely to be cautious about investment in the near term, with Brexit negotiations predicted to progress slowly.

As a result, GDP growth this year will likely be at 1.5%, sliding to 1.4% next year. However, progress towards a Brexit transition deal in late 2018 could help GDP growth accelerate to 1.8% in 2019 and 2% in 2020, EY, a multinational professional services firm headquartered in London, said.

The forecast also stated that inflation could fall back to about 2% during 2018, boosting consumer purchasing power and improving earnings growth.

Mark Gregory, EY chief economist, warned that the UK economy was “stuck in a period of low growth” compared to historic averages.

“The consumer sector remains under the most pressure with inflation, low wage rises, welfare cuts and a slow housing market all acting as drags on spending,” he said.

Gregory added that consumer and retail businesses were also being disrupted from online in their sectors and “it may be time to undertake an in-depth review” as to how their business models fit the emerging environment.

Consequently, EY advised businesses it would be sensible to include a downside case in their planning, in particular a potential sharp slowdown after Brexit.