What doom and gloom? Bank says good times ahead
THE economy may be about to enter a ‘sweet spot’ with wage growth set to take off and exports poised to boom, according to a leading investment bank.
A deal on a Brexit transition and a strengthening economy could see the pound recover to levels close to those seen before the vote to leave the European Union, said MUFG, the world’s fifth largest bank.
However, the forecasts fly in the face of mounting gloom about the economic outlook.
Think-tank the Resolution Foundation said last week it was not expecting wage growth next year.
But MUFG’s European head of global markets research, Derek Halpenny, believes there are signs of stronger pay growth.
He said the last six months of pay data show wage growth has accelerated to an equivalent annual rate of more than 3 per cent.
Halpenny also said the pound could rise against the dollar as high as $1.45 – from $1.34 on Friday – closing in on the levels seen before the referendum.
‘The next phase of EU talks is crucial,’ Halpenny said. He believes negotiating a transition deal will ‘have a big impact on sentiment in 2018’.
Halpenny thinks pressure on wages could ease while strong export numbers and growing global demand could also give a lift to the economy. ‘It’s quite a sweet spot for the UK,’ he said.
The economy grew by 1.5 per cent during 2017, economists believe. Consumer spending rose by 2 per cent despite the squeeze on real incomes.
With inflation falling, consultancy Capital Economics said consumer spending could grow even faster.
‘The peak inflationary effect of sterling’s slide – the main driver of the rise in CPI inflation in the past year – looks to have passed. There could be scope for an acceleration in consumer spending growth ahead,’ the consultancy said.
Capital Economics predicts growth of 2.2 per cent in 2018 – more optimistic than the consensus of 1.4 per cent.
Forecaster Fathom Consulting expects growth of just 0.3 per cent.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: ‘The economy will not spring back to life in 2018 just because the risk of a hard Brexit has faded into the middle distance.
‘Meagre increases in real wages and employment, moderately higher interest rates and the precarious housing market will weigh on growth in consumption.
‘Neither investment nor net trade will fully take up the slack.’