DON’T expect a miracle year, say economists. Growth will stay below 2% despite the Brexit dividend and house prices will not go up for months
- The International Monetary Fund prediction for UK growth is 1.4 per cent in 2020
- Low unemployment (now 3.8%) has been a success story of the post-crisis years
- Economist Peter Dixon, Commerzbank: ‘Europe is not likely to go into recession’
Britain’s economy is set to grow by less than 2 per cent next year and house price rises could take up to six months to kick in, analysis by The Mail on Sunday shows.
The sobering outlook, from a major MoS survey of economic forecasts, will come as a setback for Prime Minister Boris Johnson’s hopes of an instant era of post-Brexit prosperity.
Economists said that while Britain may well be free to make its own trade deals after January 31, there is no cutting loose from a world economy facing multiple sources of instability.
Forecasts for UK GDP growth ranged from a pessimistic 0.5 per cent – suggested by IHS Markit – to the more upbeat 2 per cent offered by Liverpool Macro Research
The experts said the US-China trade war and the potentially fraught negotiations over the UK-European Union agreement on market access would act as barriers to growth in 2020.
They warned that the talks between London and Brussels would be conducted against the backdrop of an ‘overdue recession’ for advanced economies.
Forecasts for UK GDP growth ranged from a pessimistic 0.5 per cent – suggested by the financial information group IHS Markit – to the more upbeat 2 per cent offered by Liverpool Macro Research.
The International Monetary Fund prediction for the UK was 1.4 per cent in 2020 – below the 1.7 per cent expected for the US but on a par with the 1.4 per cent forecast for the eurozone.
The Treasury’s Office for Budget Responsibility expects inflation on the Consumer Prices Index to run at 1.8 per cent in the first quarter of 2020, rising to 1.9 per cent by the fourth quarter. By comparison, the IMF expects 1.4 per cent inflation in the eurozone and 2.3 per cent in the US.
On house prices, economists from NatWest Markets said the OBR’s 2020 forecasts (published in March) – which showed a shrinking market returning to anaemic growth of 0.9 per cent by June next year, before hitting 2.6 per cent by December – remained broadly correct.
On house prices, economists from NatWest Markets said the OBR’s 2020 forecasts (published in March) – which showed a shrinking market returning to anaemic growth of 0.9 per cent by June next year, before hitting 2.6 per cent by December – remained broadly correct
They said that while the greater clarity on Brexit could now push growth to 3 per cent, it would take many months for increased activity among buyers and sellers to impact on prices.
Peter Dixon, global financial economist with Commerzbank in London, stressed that Britain’s prospects cannot be seen in isolation from the rest of the world. ‘Europe is not likely to go into recession, but it will feel pretty miserable,’ he said.
‘The big question is what happens regarding the US and China. This is driving a lot of what is happening, and I do not expect a resolution to the trade dispute before the summer. Donald Trump will not want a settlement coming so early that it does not help him win the election in the autumn.’
Neil Shearing, chief global economist at Capital Economics research group, was sceptical about the Prime Minister’s vision of a ‘Brexit bonus’ for economic growth. ‘We wouldn’t go along with the scenario of sunlit uplands with a tidal wave of investment released by Brexit,’ he said.
‘But even though the economy flatlined in the fourth quarter, we don’t believe it is teetering on the brink of recession.
‘The handbrake won’t fully come off the economy until the final shape of Brexit becomes clearer. We would expect growth of about 1 per cent next year.’
Neil Shearing, chief global economist at Capital Economics research group, is sceptical about the Prime Minister’s vision of a ‘Brexit bonus’ for economic growth. ‘We wouldn’t go along with the scenario of sunlit uplands with a tidal wave of investment released by Brexit,’ he said
For some economists, there are unanswered questions over Mr Johnson’s promises to spend more and bring austerity to an end. Jagjit Chadha, director of the National Institute of Economic and Social Research, said: ‘During the Election we saw a rash of spending promises to placate a disillusioned electorate. But what was lacking was a credible set of mutually reinforcing policies.’
The Tories’ success in taking Northern seats from Labour has encouraged Ministers to talk up the scope for regeneration of regions that have been ‘left behind’. But Douglas McWilliams, deputy chairman of the Centre for Economics and Business Research, warned it will not be ‘as simple as it seems’.
He suggested that rather than Whitehall bankroll the pet projects of local councils, it should try to establish IT hubs that could attract younger workers. ‘It will be hard to reconcile the promises on public services made in the Election with the low tax economy that could boost growth,’ he added.
Employment has been the success story of the post-crisis years, but the consensus among economists was for the jobless rate to rise from the current 3.8 per cent to 4.1 per cent in 2020.