UK: Economy set to enter a downtrend in 2018

5 min

Q4 2017 GDP growth came in at +0.5% q/q, slightly above the +0.4% q/q observed in the previous quarter. This took growth for 2017 as a whole to +1.8%. While only a slight dip compared to the +1.9% expansion seen in 2016, this is the lowest growth rate for the British economy since 2012. Whereas the preliminary Q4 growth estimate seems to underline the British economy’s resilience 18 months after the Brexit vote, in our view it’s downhill from here with the slow-burning growth deceleration that is already underway set to become more pronounced in 2018. 

Brexit uncertainty will have a dampening impact on investment while the consumer squeeze will continue in 2018 in the context of inflation outpacing wage growth and weakening house prices. Meanwhile the modest growth contribution from the external sector – thanks to the favorable global growth outlook – will not prove strong enough to offset the expected slowdown in domestic demand. We forecast UK GDP growth to reach just +1.4% this year – one of the lowest growth rates across the EU.