Stronger global economy paves the way to Brexit

Peter Spencer

A revival in the UK’s overseas markets will support the economy’s readjustment away from consumer spending towards trade and help smooth the impact of Brexit on GDP, according to the EY ITEM Club spring forecast.

The EY ITEM Club says that while consumer spending provided all of the UK’s growth last year while overseas trade subtracted 0.4% from GDP, the balance of economic activity in 2017 will be different.

As a result of support from a stronger global economy, the EY ITEM Club says that GDP growth will reach 1.8% this year (up from 1.3% in its previous forecast), 1.2% in 2018 (from 1%) and 1.5% in 2019 (from 1.4%). The EY ITEM Club says that the MPC is likely to hold Bank Rate at its current 0.25% until the autumn of 2018.

Peter Spencer, chief economic advisor to the EY ITEM Club, comments: “Although the starting gun for Brexit has just been fired, the UK economy has been adjusting to life outside the EU since the referendum. Recent data suggest that the pound’s depreciation has boosted manufacturing, while inflation has subdued retail sales growth.

“At the same time, unlike 2008 when the pound last had a big fall, we are now selling into buoyant markets. Growth in world trade, which has been in the doldrums for several years, is now stronger than at any time since the initial bounce-back from the recession in 2010. This will be a big help in offsetting the headwinds from weaker consumer spending.”