Brexit uncertainties dent UK growth predictions

Brexit uncertainty means the UK’s growth outlook is significantly below the global average over the next two years, according to research from the OECD

The world economy has strengthened, and is set to grow by 3.6% this year, 3.7% in 2018 and 3.6% in 2019, in the latest predictions for the global economic outlook.

However, the OECD also says that in the UK, the growth slowdown is expected to continue through 2018, due to continuing uncertainty over the outcome of negotiations around the decision to leave the EU and the impact of higher inflation on household purchasing power. In this context, the UK is projected to grow by 1.5% this year, 1.2% in 2018 and 1.1% in 2019.

In its report the OECD argues a sounder and healthier financial system would reduce the tax bias towards debt, deepen equity markets and improve the design of insolvency regimes. Removing tax subsidies for housing and making housing supply more fluid would mitigate the tendency to boom-and-bust cycles.

Its predictions show growth in the US is estimated at 2.2% in 2017, rising to 2.5% in 2018, then dropping back to 2.1% in 2019.

The euro area is projected to grow at a 2.4% rate in 2017 and a 2.1% pace in 2018 – upward revisions from previous projections driven by stronger growth in key European countries – before slowing to a 1.9% pace in 2019.

Angel Gurria, OECD secretary-general, said: ‘Growth has picked up momentum and the short-term outlook is positive, but there are still clear weaknesses and vulnerabilities.

‘There is a need to focus structural and fiscal action on boosting long-term potential as monetary policy support is reduced. Countries should implement reform packages that catalyse the private sector to promote productivity, higher wages and more inclusive growth.

Paul Falvey, tax partner at BDO said: ‘The OECD expects UK growth to worsen over the next two years, predicting the economy will grow by just 1.1% in 2019; an even bleaker outlook than the view from the OBR, which predicted growth of 1.3% in 2019, in last week’s Autumn Budget. Some of the reasons for the low growth forecast are lagging investment, rising debt and productivity remaining low.

‘Without investment in areas such as technology and infrastructure and higher productivity the country can’t achieve growth. Last week’s Autumn Budget did little to address any of these areas and with the Chancellor’s hands tied in terms of tackling productivity and making any significant investment in public service the UK is likely to face significant challenges over the next few years.’

OECD Economic Outlook is here.

Report by Pat Sweet

Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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