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Weakest expansion for six years

Rate rise in doubt as UK poised for ‘tepid’ growth

scottish economy

The economy suffered a bad start to the year


 

Bank of England rate-setters were handed more reason to hold interest rates after new research indicated the UK economy will experience only ‘tepid’ growth in 2018, the weakest for six years.

This was because of higher inflation, reduced consumer spending and a loss of momentum in the eurozone economy, says the latest forecast from the EY ITEM Club. 

Its Summer Forecast expects UK GDP to grow by 1.4% in 2018, the weakest performance since 2012, and 1.6% in 2019, downgraded from 1.6% and 1.7% in its spring forecast.

A weak first quarter, with GDP rising by 0.2% quarter-on-quarter (q/q) gave the economy a bad start to 2018. However, with a rebound in consumer activity in Q2 and a positive set of business surveys the EY ITEM Club expects Q2 economic growth to be 0.4%.

Howard Archer, chief economic advisor to the EY ITEM Club comments: “When the EY ITEM Club Spring Forecast was published in April, hopes rested on the economy making up the output lost in the first quarter and bouncing back to a more ‘normal’ rate of expansion in the second quarter. Those aspirations have been met with mixed results.

“Strong retail growth in April and May and some signs of green shoots in the new car market point to the consumer sector staging a decent recovery from weather-related weakness earlier in the year.

“But the more ‘physical’ parts of the economy, manufacturing and construction, have shown less momentum, with the former possibly held back by an unexpected slowdown in the eurozone economy.

“The hoped-for boost to consumers’ purchasing power from falling inflation is now also looking more fragile because of the rising price of oil and hikes in energy bills.”



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