The UK economy in 2020: another year of modest growth

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses prospects for 2020, quoting recent official forecasts for 2020 for UK growth:

  • Underlying economic growth has weakened recently, but it should pick-up modestly through 2020, supported by a partial resolution to Brexit uncertainty and the expected fiscal boost.
  • The latest forecasts from the four major official forecasting institutions, the IMF, the Bank of England, the European Commission and the OECD, suggest that growth in 2020 (on average) should be similar to growth in 2019. This seems reasonable, allowing for the variable quarterly pattern.
  • Given that growth is expected to be about 1.3% in 2019, it seems reasonable to expect similar growth in 2020.

Concerning UK economic news:

  • GDP growth for 2019Q3 was modestly revised to 0.4% (QOQ) from 0.3%. Concerning the industrial breakdown, most of the growth came from the services sector. Concerning the expenditure breakdown, household consumption and an improved trade balance contributed to growth, whilst government consumption slipped and further destocking acted as a drag on growth.
  • The current account deficit improved in 2019Q3, reflecting the improved trade (goods and services) balance.
  • November’s retails sales data were disappointing, but they could have been distorted downwards by the timing of “Black Friday”.
  • The Bank’s latest Agents business survey was subdued, with business beset by political uncertainty ahead of the General Election (12 December).
  • The Labour market remains robust, though employment growth is slowing and vacancies are slipping. The unemployment rate was 3.8% in the three months to October, the lowest since November 1974-February 1975.
  • Even though the rate of growth of annual earnings (total, including bonuses) slipped to 3.2% in the three months to October, real earnings were still 1.5% higher (YOY).
  • Inflationary pressures remain well contained. CPIH inflation was just 1.5% (YOY) in November.
  • The housing market remains subdued. The annual increase in October was just 0.7%, compared with September’s 1.3%.
  • Public sector borrowing so far in FY2019 continues to run ahead of the equivalent months in FY2018. Borrowing in the first 8 months of FY2019 (April-November) was £50.9bn, compared with £45.7bn a year earlier.

Recent Central Bank news:

  • The Bank of England left monetary unchanged at its December meeting, as expected.
  • Andrew Bailey was named as the next Governor of the Bank of England, as from 16 March 2020. Mark Carney will complete his term on 15 March 2020.

Concerning recent political developments:

  • The Queen’s Speech (19 December) proposed over 30 bills, of which seven related to Brexit, the Government’s priority.
  • The revised European Union (Withdrawal Agreement) Bill passed its Second Reading in the Commons on 20 December by 358 to 234 (a majority of 124). The revisions included the prohibition of the transition period beyond 31 December 2020.

Ruth Lea said, “…the economy has been facing the twin headwinds of Brexit uncertainty, which has almost certainly depressed business investment and could also have undermined the consumer, and the weaker global economy, especially in the Eurozone. Having said that, there still seems to be growth. Moreover, growth in 2020 should be helped by an expected fiscal boost next year in the Budget (February or March). In addition, the economy should also be supported by signs of increasing clarification on Brexit. The four major official forecasting institutions agree that growth in 2020 should be similar to 2019, all things considered, and this would point to GDP growth of around 1.3% in 2020.”

Ruth Lea CBE has been Arbuthnot Banking Group’s Economic Adviser since 2007 and was an Independent Non-Executive Director from 2005-2016.

Ruth co-founded Global Vision in 2007 and was Director until 2010, and was previously the Director of the Centre for Policy Studies (from 2004 to 2007), Head of the Policy Unit at the Institute of Directors (from 1995 to 2003) and Economics Editor at ITN (from 1994 to 1995).  Prior to ITN she was Chief UK Economist at Lehman Brothers, Chief Economist at Mitsubishi Bank, worked for 16 years in the Civil Service (the Treasury, the DTI, the Civil Service College and the Central Statistical Office) and was an economics lecturer at Thames Polytechnic (now the University of Greenwich).

She is the author of many papers and articles on economic issues and has been a Governor of the London School of Economics and Council Member of the University of London.

Tel: 020 8346 3482
Mobile: 07800 608 674
Email: ruthlea@arbuthnot.co.uk

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