Con­fi­dence at low­est point for six years, fore­cast­ers say

The Guardian - - FINANCIAL - Si­mon Good­ley

The UK needs to pre­pare it­self for a weaker eco­nomic per­for­mance, two ma­jor fore­cast­ing groups warn in the lat­est stud­ies pre­dict­ing the down­side of Brexit.

Frag­ile busi­ness sen­ti­ment, po­lit­i­cal un­cer­tainty and squeezed con­sumer bud­gets have led to busi­ness con­fi­dence fall­ing to its low­est level for six years, the eco­nomic con­sul­tancy IHS Markit re­ports.

The EY Item Club, mean­while, said eco­nomic growth will con­tinue to weaken this year amid a Brexit con­sumer spend­ing squeeze and muted earn­ings growth, as it down­graded its fore­casts.

Chris Wil­liamson, chief econ­o­mist at IHS Markit, said: “Com­pa­nies have be­come in­creas­ingly wor­ried about the busi­ness out­look, largely as a re­sult of height­ened po­lit­i­cal un­cer­tain­ties and the po­ten­tial im­pact of Brexit.” He added: “The drop in con­fi­dence pushed the level of UK op­ti­mism be­low that seen in the euro­zone for the first time in seven years, and con­trasts with multi-year high lev­els of op­ti­mism in the United States and Ja­pan. As such, the sur­vey re­sults sug­gest the UK is at risk of fall­ing be­hind in an other­wise solid-look­ing global eco­nomic out­look.”

IHS said the “net bal­ance” of UK firms ex­pect­ing a rise in busi­ness ac­tiv­ity over the next 12 months stood at +35% in June, markedly down from +52% in Fe­bru­ary and the low­est read­ing since Oc­to­ber 2011.

The ser­vices sec­tor recorded a score of +32%, while more op­ti­mistic man­u­fac­tur­ing com­pa­nies, who are hop­ing for gains in new ex­port mar­kets, scored a bal­ance of +49%.

The EY Item Club nudged down its fore­cast of GDP growth from 1.8% to 1.5% in 2017, say­ing that the UK econ­omy has de­te­ri­o­rated since April.

Pe­ter Spencer, the group’s chief eco­nomic ad­viser, said: “The out­look for this year has de­te­ri­o­rated since our spring fore­cast.” He warned that con­sumer spend­ing, the econ­omy’s main en­gine of growth, will con­tinue to lose mo­men­tum as the pound’s col­lapse since the Brexit vote stokes in­fla­tion. “The in­fla­tion­ary squeeze on con­sumers has been painful and shows lit­tle sign of eas­ing any time soon,” he said.

Ster­ling’s sharp drop is yet to fully feed through to the con­sumer prices in­dex, with in­fla­tion ex­pected to reach 3.2-3.3% this au­tumn – well ahead of the growth in av­er­age earn­ings.

Real house­hold dis­pos­able in­come is fore­cast to fall 0.2% this year, be­fore re­cov­er­ing by 1.1% next year, while with the house­hold sav­ing ra­tio at a record low of 1.7% in the first quar­ter, con­sumers will have lim­ited scope to mit­i­gate the im­pact. EY ex­pects con­sumer spend­ing growth to slow from a nine-year high of 2.8% in 2016 to 1.9% this year and 1% in 2018.

Newspapers in English

Newspapers from UK

© PressReader. All rights reserved.