Vanessa Hale
Director, Research
The fundamentals of the UK economy remain broadly positive, but sentiment remains cautious.
Brexit continues to be a major source of uncertainty within British politics. A deal is yet to be agreed. Theresa May lost the ‘meaningful vote’ on her Brexit plan and narrowly survived the subsequent no-confidence vote. She is calling for a cross party consensus but there remains very little agreement on Brexit both within her party and across parties. The result of this is that considerable political uncertainty remains and it is extremely difficult to predict when this will change. It is feeding through into a very cautious and unknown economic outlook from most commentators.
The National Institute for Economic and Social Research estimates that the UK economy grew by 0.3% over the course of Q4 2018, which was lower than the growth rate achieved in Q3 2018 (0.6%). This is consistent with the HM Treasury central forecast that over the course of 2018 the UK economy grew by c.1.3%. The forecast for growth during 2018 gradually dropped throughout the year, although not considerably, and finished broadly as expected. For 2019 the forecast has remained largely unchanged, ranging from 0.9% to 2.2% with an average forecast of 1.5%.
The Institute of Chartered Accountants in England and Wales measures business confidence on a scale of -100 to +100 (+100 being extremely confident, 0 being neutral, -100 being extremely negative).In Q3 2018 the UK scored -2.Q4 2018 has seen a reduction in confidence and the UK now scores -12.3. This is the lowest that business confidence has been in the UK since the financial crash.
From a regional perspective, in Q3 2018 many parts of the country such as the West Midlands, Scotland and the East of England reported positive business confidence. However, in Q4 2018 all regions across the UK have reported negative confidence. Wales is the most confident region with a score of -6. London has a business confidence of -9.1. Despite being negative this is above the UK average of -12.3. The ICAEW claim the decline in confidence seen in Q4 2018 set in immediately after the PM unveiled the draft Brexit agreement.
The latest figures from the ONS show that inflation (CPIH) in November 2018 was at 2.2%. This is unchanged from the previous month but lower than the inflation rate a year ago (2.8%). The cause for this drop off over the past 12 months has been a reduction in the cost of petrol and recreational goods and services.
The Bank of England have maintained the 0.75% interest rate, and are still planning to reach an interest rate of 2.0% by 2021. What happens to the economy in the coming months, particularly post 29th March, may have an influence on whether this target needs to be revised.