UK: Growth slowed significantly since the 2016 referendum – ABN AMRO

In view of Bill Diviney, senior economist at ABN AMRO, as the political stalemate over Brexit has dragged on for the UK economy, so the economic damage has increased and become harder to reverse.

Key Quotes

“While avoiding predictions of a recession in the post-referendum aftermath, the threat of a no-deal, disorderly Brexit has hit both consumption and investment. The initial victim was disposable household incomes, as the fall in sterling drove higher inflation, without a corresponding increase in wage growth.”

“To some extent, consumers dipped into savings to make up the shortfall in income growth, driving the savings rate to historically low levels. However, since the referendum, consumption growth has fallen from an average 3.3% pace in 2015-16, to 1.7% in 2017-19.”

“A stagnation in investment has followed; while initially holding up after the referendum, investment has essentially flatlined since mid-2017. After contracting -0.1% in 2018, our forecast is for zero investment growth in 2019 – this compares with the average 3.0% growth pace over 2015-17. Taken together, weaker consumption and investment have driven overall GDP growth down from 2.1% in 2015-16 to 1.4% in 2018, and our projection of 1.2% in both 2019-20.”