KPMG revises UK growth forecast - KPMG United Kingdom
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KPMG revises UK growth forecast due to Brexit and global headwinds

KPMG revises UK growth forecast

According to KPMG UK’s quarterly Economic Outlook, the lack of clarity around Brexit and headwinds from the global economy has resulted in a downgrade of the short-term outlook for the UK economy.

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  • Assuming that a Brexit deal can be reached, the analysis predicts the economy will grow at a rate of 1.2% in 2019 and 1.5% in 2020. 
  • Regardless of the outcome of Brexit, the EU will continue to be one of the largest markets for the UK by virtue of its size and proximity.

According to KPMG UK’s quarterly Economic Outlook, the lack of clarity around Brexit and headwinds from the global economy has resulted in a downgrade of the short-term outlook for the UK economy. KPMG has revised its expectations of GDP growth to just 1.2% for 2019, down from 1.6% cited in December, marking the lowest rate of growth since 2008-2009. However, the forecast for 2020 remains unchanged at 1.5%.

Consumer spending, although weak, remains the main force supporting the economy and is expected to grow by 1.4% in 2019 and 2020. Low levels of unemployment – which are projected to remain near record lows increasing to only 4.1% (from 4.0%) in mid-2019 and 2020 - and resilient increases in wages should help maintain confidence across British households.*

Also, given the uncertainty and moderate inflationary pressures – the Bank of England is unlikely to make its next move before November, raising interest rates to 1.00% to combat the threat of higher domestic inflation.
 

Table 1: KPMG main scenario for the UK economy

 

 

2018

2019

2020

GDP

1.4

1.2

1.5

Consumer spending

1.9

1.4

1.4

Investment

0

-0.2

1.6

Unemployment rate

4.1

4.1

4.1

Inflation

2.5

2.0

2.2

Base interest rate

0.75

1.00

1.00

 

Yael Selfin, Chief Economist at KPMG UK, commented on the report:

“The lack of clarity around Brexit, the disappointing data in the Eurozone, the waning stimulus in the US and a slowdown in China are making for a challenging environment. This cocktail of uncertainty and dwindling short-term prospects has also had a knock-on effect on business investment, which has continued to slump and is expected to shrink by 0.2% in 2019 as a whole, as businesses choose to further postpone their investment plans.

“Brexit aside, the Government needs to focus on longstanding challenges that have plagued the UK for some time, such as weak productivity and the rising disparity of opportunities across the UK. Tackling these issues will go a long way in helping the UK economy to reach its potential.”


The EU will remain central to UK trade for years to come

Regardless of the outcome of Brexit, the EU will continue to be one of the largest markets for the UK by virtue of its size and proximity. Based on KPMG analysis, seven EU countries currently feature among the top 10 largest potential trading partners for the UK, representing 49% of UK’s potential exports market, with Switzerland accounting for another 3%. The two largest world economies, China and the US are the only non-European economies among the top 10.

The Outlook highlights that despite Brexit, by 2050, the UK’s largest potential trading partners appear little changed, except for the more prominent role played by large emerging economies. China is set to take up the top spot with 12% of the overall potential market for the UK and India is in 6th place, with 4% of the total. However, representing a total of 36%, six of the UK’s top 10 largest potential exports markets will continue to be countries in the EU.

Yael Selfin, Chief Economist at KPMG UK, concluded:

“The UK’s current role within ‘factory Europe’ cannot be taken for granted. The trade links currently most at risk are those which form part of existing production chains. In the event of a reversion to trade on the basis of WTO rules these links would be disrupted. Ultimately, such barriers to trade could lead to a reorganisation of value chains that bypass the UK entirely.”

                                                             -ENDS-

For media enquiries, please contact:

Ross Williamson, Kekst CNC
Tel: +44(0) 7904 994 970

Email: ross.williamson@kekstcnc.com
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KPMG Press Office: +44 (0)207 694 8773


Notes to Editors:

*These figures are based on an assumption that a Brexit deal is agreed and the UK enters a transitionary period allowing the UK to be spared from significant changes to its trading relationship with the EU until at least January 2021.

About the research

The forecasts were produced by the KPMG macroeconomics team using a suite of external and in-house models capturing the main inter-relationships in the UK economy. As with all forecasts, these are subject to considerable uncertainty and the outturn may differ significantly. For more details, please see the full “Economic Outlook” at: www.kpmg.com/uk/economicoutlook

About KPMG

KPMG LLP, a UK limited liability partnership, operates from 22 offices across the UK with approximately 16,300 partners and staff. The UK firm recorded a revenue of £2.338 billion in the year ended 30 September 2018. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 154 countries and has 200,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.
 

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