Brexit a “major risk” to UK economy as slowdown set to continue in 2018
At 1%, UK economic growth in 2018 set to be one of the lowest amongst OECD countries.
New figures from economic organisation OECD show that whilst the world economy has picked up momentum and will continue to do so in 2018, the same cannot be said for the UK economy. The OECD’s latest Interim Economic Outlook said the UK economy is projected to grow at 1.6% in 2017 and to slow even further to 1% in 2018. The report said the “previously identified growth slowdown is expected to continue, while uncertainty remains over the outcome of negotiations around the decision to leave the European Union.”
Put that into context, the report said the global economy will grow by 3.5% in 2017 and 3.7% in 2018 with GDP growth rate highest for India, China, Indonesia and Luxembourg. And of the OECD’s 35 member countries, UK growth in 2018 is set to be one of the slowest – behind Germany (2.1%), France (1.6%), US (2.4%), Canada (2.3%), Russia (1.6%) and Brazil (1.6%). GDP growth in the whole of the Eurozone is projected to be 1.9% in 2018.
The OECD’s projections for the UK assumes that trade will be governed by “most favoured nation” rules when it leaves the bloc. This is what would happen should the UK leave with no transition deal and no future partnership deal with the EU. In a country report for the UK, the OECD said “the uncertainty, and the assumed outcome, is projected to undermine spending, in particular investment.”
On UK trade, the OECD said that “despite the depreciation of the exchange rate, exports have been volatile and export market shares have not risen.” Recent trade figures revealed by the Office for National Statistics showed the UK trade deficit had widened further in July largely due to an increase in imports and a fall in exports to non-EU countries. Commenting on the figures, British Chambers of Commerce’s head of economics, Suren Thiru, said “it is increasingly clear that the post-EU referendum slide in the value of sterling has done more harm than good.”
Other projections in the OECD’s UK report include a slowdown in consumer spending due to high inflation holding back real wage growth as well as a reduction in business investment. The report said “business investment is projected to contract amid the large uncertainty and because of lower corporate margins.” And although the UK’s employment figures show the labour market continues to be resilient (unemployment fell to 4.3% in the latest labour report), the OECD warned “weaker growth could push the unemployment rate above 5%.”
UK should seek swift progress in Brexit talks and continuing strong trade links with EU
The OECD said Brexit is a “major risk” to the UK economy adding that “swift progress in negotiations and an outcome that retains strong trade linkages with the EU would lead to better outcomes than projected.”
The major risk for the economy is the uncertainty surrounding the exit process from the European Union. Higher uncertainty could hamper domestic and foreign investment more than projected, but swift progress in negotiations and an outcome that retains strong trade linkages with the European Union would lead to better outcomes than projected.
Export growth could be weaker if export prices rise more than projected, reducing competiveness gains from the past exchange rate depreciation.
OECD Economic Outlook: Country Notes for UK
You can see the full UK report at oecd.org.