UK: Activity is expected to considerably slow down in Q4

3 min
Ana Boata
Ana Boata Senior Economist for Europe

The rebound in economic growth in Q3 (+0.6% q/q) was triggered by a number of temporary factors, including contingency planning due to the uncertainty on the Brexit deal by March 2019. With GDP flat in August and September and the Composite PMI falling in October, we expect GDP growth to slow to +0.2% to +0.3% q/q in Q4. Tighter credit conditions, halted investment decisions, weaker con­sum­er confidence and more fragile business profitability will take their toll on the economy. In addition to the higher import costs, the acceleration in annual regular pay growth (+3.2%, a nearly 10-year high) is also a drag on their profitability. We predict annual GDP growth will decelerate to +1.2% in 2019 (from +1.3% in 2018) compared to forecasts of +1.7% by the BoE and +1.6% by the Office for Budget Responsibility. The enduring uncertainty over the UK’s future trading relationship with the EU will con­tinue to weigh heavily on corporate investment and the value of the GBP. As a result, we expect the BoE to deliver only one +25bp interest rate increase next year, with Q2 the most likely timeframe.