Update on the UK Economy (March 2019)

The UK economy is slowing down nearly nine years after the end of the last recession. Growth has been weakening since 2014 and in 2018, real GDP increased by just 1.4%, the lowest pace of expansion since 2012.

We are in the midst of a deep Brexit fog and levels of policy uncertainty remain high, down from the shock of June 2016 but noticeably higher than in the preceding years.

Treat all macro-economic forecasts with a healthy dose of skepticism and especially now with the uncertainty regarding the timing and nature of UK’s exit from the European Union. There is a reason why the bank of England produces their famous probability distribution forecasts.

It is important to stand back and look at the bigger picture.

Adjusting for purchasing power parity, the UK is now the 9^th biggest economy in the world with a 2.3% share of measured global GDP. Both Indonesia and Brazil (on a PPP basis have overtaken the UK using data for 2017).

Clearly Brexit uncertainty is having an impact but so too are external factors such as the slowing Chinese economy and signs that the US economy (the fastest growing developed country in 2018) is also seeing a softening of growth which in turn is a reflect of the Fed’s decision to raise interest rates.

Germany – the anchor country for the EU is also experiencing a growth slowdown and overall, world trade is expanding less quickly.

The labour market probably remains the strongest aspect of the economy at the moment with the LFS unemployment rate at a forty five year low (just 4.0% of the labour force) and employment rates at record highs. Whether or not the UK can get closer to full employment remains to be seen. Growth is softening and a disorderly Brexit threatens tens of thousands of jobs from retail to car manufacturing and the city of London.

The resilience of the UK economy will be tested sorely in the next few years. Underneath the surface there are some really exciting developments in areas such as creative services, life sciences, artificial intelligence and fin tech. But the risk of a serious drain of talent from the UK is real.

Slides from my March 2019 update presentation on the UK economy