- Growth in the British economy will continue at just 0.2% in both Q3 and Q4 of 2017, Pantheon Macroeconomics forecasts.
- Early signs are that consumer spending will keep dragging in the third quarter.
- Trade has not been boosted by the fall in the pound seen since the vote, an unusual development.
LONDON — Britain’s economy will continue to drag in 2017, with no real pick up in overall GDP growth by the end of the year, according to economists from research house Pantheon Macroeconomics.
Writing in the firm’s daily UK Economic Monitor, Pantheon’s Chief UK Economist Samuel Tombs said that following this week’s confirmation that the economy grew just 0.3% in the second quarter of the year, early signs from the third quarter suggest that things aren’t really going to pick up.
Consumer spending, which in the post-crisis years has been the engine driving Britain’s economic recovery, has lagged since the Brexit referendum last year, dragging growth with it.
That trend seems set to continue, Tombs said.
“The early signs are that consumers have continued to spend cautiously in Q3. Retail sales volumes increased by just 0.3% month-to-month in July. And the reported sales balance of the CBI’s Distributive Trades Survey plunged to -10 in August, from +22 in July.”
“At that level, the balance points to year-over-year growth in retail sales volumes, excluding petrol, falling to about 1.0% in August from 1.5% in July, consistent with a month-to-month drop.
As inflation rises, regular goods become more expensive. Couple that with the fact that wages are growing relatively slowly, and you get a situation whereby people have less money to spend on everyday items and luxuries.
Households therefore cut back, and this leads to slowing consumer spending on a macroeconomic level.
As a result of this, Pantheon is clear that growth will remain weak this year.
“Accordingly, we continue to expect households’ spending to grow only modestly in the second half of 2017. And while recent surveys bring hope that growth in exports will pick up pace, Brexit risk likely will increasingly bear down on business investment as the U.K.’s exit date draws nearer,” Tombs said.
“As such, we expect the economy to continue to struggle, with GDP rising by just 0.2% in both Q3 and Q4.”
The depreciation seen in the pound since the vote has not substantially boosted trade, as has historically been the case during periods of sterling declining.
“Overall, net trade still has dragged on GDP since sterling began to depreciate at the end of 2015. By contrast, it had boosted GDP at the same point after all other past post-war depreciations, as our next chart shows,” Tombs writes.
That chart can be seen below:
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