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UK economy sees worst growth since 2012

The UK economy grew at its slowest rate since 2012 in November, meaning an interest rate cut from the Bank of England (BoE) could be on the cards soon.

UK GDP grew at 0.6% in the 12 months to November, the Office for National Statistics said today (13 January), down from 1% in October, representing the slowest annual growth rate for more than seven years.

The figures come after Monetary Policy Committee member Gertjan Vlieghe told the Financial Times he would “need to see an imminent and significant improvement in the UK data to justify waiting a little longer” to cut rates.

Sterling continued its decline on the news, with a 0.6% decline on Monday (13 January) seeing the currency drop below $1.30 once more. That buoyed the stockmarket, though, with the blue-chip FTSE 100 index rising 0.5% and FTSE 250 advancing 1%.

The economy declined by 0.3% in November alone, well below consensus expectations of zero month-on-month growth.

This was likely due to businesses bringing activity forward to before the 31 October Brexit deadline, said Andrew Wishart, UK economist at Capital Economics.

Upwards revisions of 0.2% and 0.1% to September and October’s figures respectively left growth in the three months to November at 0.1%, meanwhile.

However, November’s sharp decline “nonetheless leaves the economy on course to contract by 0.1% in Q4 as a whole”, Wishart said.

Rob Kent-Smith, head of GDP at the ONS, said growth in construction was offset by “weakening services and another lacklustre performance from manufacturing”.

“Long term, the economy continues to slow, with growth in the economy compared with the same time last year at its lowest since the spring of 2012,” he added.

Interest rate cut more likely

The figures fuelled speculation an interest rate cut could be closer than previously thought, particularly allied with Vlieghe’s comment.

Last week, both BoE Governor Mark Carney and fellow MPC member Silvana Tenreyro spoke positively about the possibility of a rate cut sooner rather than later.

Michael Saunders, one of two who voted for a cut at the last meeting, is set to speak on Wednesday.

Matthew Cady, investment strategist at Brooks Macdonald, said markets are currently pricing in close to a 50/50 chance of a 25 basis point cut to the UK’s current 0.75% Bank Rate.

“The weaker GDP print today puts beyond doubt that the next Bank of England meeting at the end of January is going to be a ‘live’ meeting,” said Cady.

With the BoE having already cut both growth and inflation forecasts and the next Brexit deadline of 31 January looming, Cady said “UK investors will need this monetary and fiscal support to fall back on, and any disappointment here could be difficult for markets to swallow”.

However, Wishart said a weak UK economy is “old news”, meaning today’s GDP figures “won’t seal an interest rate cut”, despite noting “it will be a close call”.

“In normal times, the MPC would already have cut rates. But it held off to see if the general election produced a revival in sentiment,” Wishart said.

“What really matters is what happens in the data for January. At the moment, we think the MPC may hold off from cutting rates.”

By David Brenchley

Source: Professional Adviser

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Bank of England rate cut story hots up for UK markets

Despite some dovish-sounding language from Bank of England officials over recent days, we think it’s still too early to be pencilling in rate cuts. We take a look at what all of this means for the pound and UK rates.

Don’t over-interpret Governor Carney’s comments

Amid a temporary lull in Brexit turbulence, the Bank of England story is once again drawing the attention of investors.

The pound slipped on Thursday after BoE Governor Mark Carney signalled the MPC was debating the merits of near-term easing. Another MPC member Silvana Tenreyro indicated on Friday that she could join the rate cut camp if uncertainty persists.

For now though, we don’t think the Bank’s position has shifted significantly.

The fact that policymakers are considering easing is not a new revelation, after all two MPC members voted for immediate rate cuts at the past couple of meetings.

Admittedly, the Governor’s comments were perhaps the most candid so far on the possible need for easing. But then again, he noted that the combination of better Brexit and trade war newsflow has seen some modest optimism creep back into the outlook.

Carney also used the speech to push back on the idea that the Bank is out of ammunition. His assertion that there is roughly 250 basis points of easing space available can perhaps be debated. In particular, we’d argue that forward guidance may not add much to this “armoury” when markets aren’t pricing imminent tightening.

But the implied message is that the Bank doesn’t need to be so worried about having to act pre-emptively.

The jobs market holds the key to any policy easing

All of this suggests the core BoE position is still to ‘wait-and-see’ and stay data-dependent. And at a time of fairly high volatility in the growth numbers, we think the Bank will be keeping a close eye on the jobs figures.

Hiring indicators deteriorated over the latter stages of 2019. Vacancies have fallen consistently, while MPC member Tenreyro pointed towards a slowdown in job-to-job flows – another typical sign of slack.

But since the election, the Bank’s own Decision Maker survey provides tentative evidence that Brexit has become less of a concern among firms. The latest Markit/REC employment also points to the first rise in permanent staff appointments in a year.

Of course the Brexit saga is far from over, and there are plenty of question marks surrounding the UK government’s ambition to agree a free-trade deal this year.

That suggests a rate cut can’t be completely ruled out. But for the time being, we think the Bank will hold off on easing, barring a more significant deterioration in the state of the jobs market.

GBP: How much is an independent BoE easing cycle worth?

In a world of low interest rates, it is no surprise to read analysis of rate differentials having lost their explanatory powers for exchange rates. That is why GBP volatility on the back of recent BoE policy comments has proved a breath of fresh air for the GBP market.

Below we highlight the relationship between US and UK interest rate differentials and GBP/USD. We choose to look at the differentials between the one-year OIS swap rates, priced one, two and three years’ forward. The 1Y1Y differential naturally is the first to react to any kind of change in relative BoE-Fed policy settings.

The chart shows a decent relationship between the differentials and GBP/USD before Brexit and immediately post Brexit, as investors assessed the economic damage Brexit would cause. From 2018 onwards, however, that relationship has dramatically broken down as the market played ping-pong with the notion of a ‘no deal’ Brexit.

Notably, those differentials have been stuck in incredibly tight ranges since last summer, as the market had already priced in the Fed easing cycle, and the BoE remained in a Brexit moratorium. An independent BoE easing cycle would seem unlikely, and is not our call right now, but if the UK jobs data dramatically disappoints – 1Y1Y GBP OIS rates could at most fall 50 basis points.

As noted above, the relationship between rate differentials is quite weak, but we estimate that a BoE-prompted 50 basis point widening in the 1Y1Y rate differential might knock 180 pips off cable. Were rate differentials to regain their pre-Brexit powers – e.g. returning to the relationship that existed in the first half of 2016 – then that 50bp widening in differentials on an independent BoE easing story would knock 720 pips off cable – according to our estimates.

GBP rates: How low would they go?

Starting at the front-end, one of the clear takeaways of Carney’s speech is the very limited appetite for negative interest rates. These comments are not a surprise but reinforce the view that the Effective Lower Bound (ELB) is located somewhere just over 0%. We put that figure around five basis points which would ensure that Sonia remains in positive territory (Sonia has traded on average four basis points below the BOE Bank Rate over the past five years).

Another tool that Carney highlighted, as mentioned above, is the use of forward guidance to more clearly signal the path of base rates over the years. This should help to peg forward interest rates to the ELB for as long as the BOE can be credibly expected to forecast economic conditions. In a context fraught with political uncertainty relating to Brexit and the future relationship with the European Union, this might not be very long. We nonetheless feel comfortable with the assumption that the expected path for base interest rates for the next two years can be effectively controlled by the BOE. This implies a ‘floor’ for 1F1Y Sonia swaps also being just above 0%, from 59bp currently). In reality, the likelihood of touching that level is reduced by the risk premia that is contained in forward swaps.

Having established that 1Y1Y Sonia swap rates could approach that level, the next pressing question is whether this level can be sustained. This brings us back to the question of the credibility of any commitment to keep interest rates at the ELB for an extended period of time. Whilst the risk of a near-term no deal Brexit has been averted, failure to agree a trade deal with the EU by the end of the year is a significant risk for the economy and for the currency. Markets might question the BOE’s ability to keep interest rates this low in the face of sterling weakness.

Rates differentials: not as much downside as dollar rates

The implication for rate differentials with the dollar is much greater scope for the Fed to ease via the path of policy rates channel. For comparison, USD 1F1Y OIS is currently around 1.3% and has traded as low as 0.15%. One can debate the relative likelihood of UK and US economies requiring monetary easing but, from the point of view of the rates differential, there is clearly more downside to dollar rates.

Going one step further, we would also argue that unlike the US, the UK is a small, open economy and the currency is free to reflect any deterioration in the economic outlook. To an extent, this precludes the need for BoE easing and would make, in investors’ minds, the Fed more likely to ease than the BoE faced with a comparable shock to the domestic economy. The dollar’s reserve status, and its attractiveness as a safe-haven could in theory produce the opposite effect on the US economy. In a global downturn, it may well be that dollar rates markets price more aggressive Fed easing in response to the tightening of financial conditions brought by dollar strength.

Source: think.ing

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What next for the housing market?

After three years of political deadlock, December’s General Election result brought greater clarity in the government’s Brexit position and decisive domestic policy.

But with less than a year to agree the UK’s future trading relationship with the EU, scattered clouds of uncertainty continue to hang over the housing market.

UK house prices in November 2019 were just 0.8 per cent higher than 12 months before, according to Nationwide Building Society. Its latest regional indices show values falling in London and the south east. The strongest growth was in Wales and the north west.

A clear parliamentary majority could provide the foundation for accelerated housing market activity in the coming months.

But we also face a backdrop of suppressed gross domestic product and wage growth.

Ongoing uncertainty over the UK’s trading relationship with the EU during the transition period and the impact of a slowing global economy means potential home movers will remain cautious about their household finances, particularly in the second half of the year.

We predict average UK house price growth will remain subdued at 1 per cent in 2020, and house price growth to increase once we have greater clarity over our relationship with the EU in 2021.

Greater certainty should translate into higher growth in wages and GDP, acting as a stimulus for housing demand, while interest rates remain low.

We forecast 4.5 per cent UK house price growth in 2021.

Beyond 2021, continued wage growth will help to support housing demand, while rising interest rates act as a drag on affordability at the point of getting a mortgage. Our forecast is for 3 per cent house price growth in 2022, 2023 and 2024.

Accounting for compound interest, that means we are predicting 15.3 per cent growth in UK house prices by 2024. That is against the context of 15.6 per cent income growth.

This story will vary widely across the UK and different parts of the market, as we see a rebalancing between regions.

In London, affordability is still highly constrained for those buying with a mortgage. We expect just 4 per cent price growth for mainstream properties over the next five years.

Buyers in the prime, central parts of London tend to be less reliant on mortgage finance, however. Prime central London now looks relatively good value, particularly from an international perspective: in September 2019, the effective discount peaked at 42 per cent below its 2014 peak in US dollar terms. Here we expect to see much stronger growth, even in the face of a potential 3 per cent stamp duty surcharge for foreign buyers, promised in the Conservative manifesto.

We predict the north west will see the fastest house price growth over the next five years: 24 per cent. High levels of infrastructure investment and employment growth will support housing demand there, and mortgage affordability is far less stretched than in London and the south.

We also predict strong growth across the rest of the north and midlands, where affordability is less of a constraint and where rental yields are higher, attracting investors. These are also expected to be the strongest performing prime regional markets, with growth at approximately 20.5 per cent.

Historically, rental growth has followed income growth, which drives our prediction of 15.4 per cent UK rental growth over the next five years.

On balance we expect housing transactions to remain stable over the next five years at 1.2m a year. But there will be a shift among buyer types: falls in investor purchase as mortgaged buy-to-let tax rules tighten, and stronger growth for mortgaged home movers.

The number of first-time buyers, however, will remain highly reliant on the detail of government’s plans to support them post-Help to Buy.

By Lawrence Bowles

Source: FT Adviser

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Top 3 predictions for the UK’s property market

Property predictions for 2020 are in with a key focus on house prices, first-time buyers and Brexit.

Combining data from last year, the property experts at Good Move have predicted what we are likely to see take place this year based on a number of factors. Whether you’re planning on buying your first home or looking into moving house, take a look at how the property market is shaping up for 2020.

1. House prices

Research found that house prices in 2019 grew ‘incredibly slowly’ due to political and economic uncertainty in the UK, leading to rises of just 1% in England. While there were some increases in areas across the country, as a whole, the property market was looking bleak.

For 2020, we could be expected to see more significant growth in property prices, albeit not a large one. The February Budget is also expected to affect the market, however it’s largely expected that house prices will increase.

Elsewhere, they also found that the cost of renting could increase by an even greater rate, as the number of letting properties is currently low (which could prompt a rise in prices).

2. First-time buyers

Large deposits can put a lot of people off when it comes to getting on the property ladder for the first time, and while there are many banks doing what they can to encourage people to buy, more can still be done. Ross Counsell, director at Good Move, says: ‘The Lifetime ISA scheme is helping people to afford the initial lump sum, but more needs to be done to support those looking to get on the property ladder.’

While the number of homes currently on the market is lower than in previous years, first-time buyers could struggle to find a suitable property, but renewed industry confidence could lead to a surge in the number of properties being listed. And if house prices do rise, many first-time buyers could find it a challenge to save for a deposit.

‘The positive news is that mortgage rates remain low. They may rise in 2020, but any increase is likely to be modest,’ he continues.

3. Brexit

With the UK set to leave the European Union on 31st January, this is of course going to bring some levels of uncertainty surrounding the housing market. While none of us are certain what is to happen, the outcome of a ‘no-deal’ Brexit could mean we see house prices fall.

Recent research conducted by Good Move found that three quarters of Brits over-estimate how badly Brexit has affected their local property prices, showing just how difficult it is to forecast.

Ross says: ‘While the economy is still languishing, the weak pound could actually make the UK property market more appealing to foreign investors, as their money will go further.

‘This, however, depends on current property owners being prepared to sell. Most will likely jump on the increase in market confidence and list their homes straight away, but others may hold on to see just how far house prices rise before making a decision.’

BY LISA WALDEN

Source: House Beautiful

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UK companies turn a little less gloomy over Brexit impact: BoE survey

British businesses turned less gloomy last month about Brexit’s eventual impact even though they expected the uncertainty to persist for longer, according to a survey conducted either side of Prime Minister Boris Johnson’s election win.

While most businesses still think Brexit will hurt sales over the long run rather than increase them, the gap narrowed in December, the Bank of England’s monthly Decision Makers Panel showed on Thursday.

The proportion expecting an eventual sales boost from Brexit rose to 17% from 13% in November, the highest since May 2018, the BoE survey showed.

Those expecting an eventual hit to sales fell to 33% from 37%.

Investors are watching for signs that Johnson’s victory in the Dec. 12 election has lifted worries about Britain’s political stability, potentially providing a much-needed boost to the economy which slowed to a crawl in late 2019.

Still, the outlook in the short-term remains challenging.

The BoE survey showed 53% of businesses cited Brexit as one of their top sources of uncertainty, the lowest share in six months and down from 55% in November.

Separately on Thursday, a British Chambers of Commerce survey of businesses showed “protracted weakness” across the economy in the fourth quarter, while an IHS Markit/CIPS report confirmed the sharpest decline in factory output since 2012.

Johnson has said he will clinch a deal settling Britain’s future trade ties with the European Union before a deadline on Dec. 31 2020, although trade experts are skeptical about the chances of a comprehensive agreement being struck by then.

Some 42% of companies who took part in the BoE survey did not expect Brexit uncertainty to be resolved until 2021 at the earliest, up from 34% in November.

The survey of 2,887 business executives was conducted between Dec. 6 and Dec. 20.

Reporting by Andy Bruce; Editing by William Schomberg

Source: UK Reuters

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Interest rates unlikely to rise in 2020, says ECB policymaker Robert Holzmann

A European Central Bank policymaker has said it is unlikely interest rates will be lifted back into positive territory next year.

Robert Holzmann cited Brexit as being likely to cause renewed concern toward the end of 2020.

The governing council voted to maintain the deposit rate at the historic low of -0.5 per cent in line with market expectations in President Christine Lagarde’s first monetary policy meeting in Frankfurt earlier this month.

“I do not expect a turnaround to a positive interest rate environment next year,” Holzmann said in a statement on Friday.

The head of Austria’s central bank said concern would grow next December toward the end of the UK’s transition period for leaving the European Union.

The UK is currently on course to leave the EU on 31 January with Boris Johnson saying a transition period up until the end of 2020 was non-negotiable, regardless of whether trade and other deals are agreed.

“There is little time for negotiations on future relations, and the outcome of the negotiations is open,” Holzmann said.

The ECB has reiterated earlier this month that rates will stay at the current level or lower until the inflation outlook is close to but below 0.2 per cent, with underlying inflation consistently convergent with that level.

Its annual forecast for real GDP growth for the euro area was 1.2 per cent in 2019, an upward revision of 0.1 per cent, but down 0.1 per cent for 2020 compared with September’s projections at 1.1 per cent.

The forecast for 2021 and 2022 is currently 1.4 per cent.

By Michael Searles

Source: City AM

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GBP to EUR Forecast: Boris to Prohibit Brexit Extension

The sterling vs euro interbank exchange rate stands at 1.1715 today. This is close to its lowest in over two weeks, or since December 3rd.

The pound stands near this fortnight low versus the common currency, first because UK Prime Minister (PM) Boris Johnson will today introduce his legislation, to “legally prohibit” the UK’s future EU trade deal talks going beyond the end of 2020.

The PM will add this clause, as part of the Withdrawal Agreement Bill (WAB), Parliament’s legal name for the Brexit agreement that PM Johnson agreed with former European Commission (EC) President Jean-Claude Juncker, in October.

Following last week’s UK election, PM Johnson enjoys an 80-seat majority in the House of Commons, so it’s thought that the amendment will smoothly pass.

However, for investors, this risks the possibility that the UK might “crash out” of Europe by December 31st 2020, without new trade arrangements, thereby weakening sterling.

UK Retail Sales Fall in November as BoE Holds Rates at 0.75%

UK retail sales fell by -0.6% in November, said the Office for National Statistics (ONS) on Thursday, below forecasts for a 0.3% rise.
The Bank of England held UK interest rates at 0.75%, as predicted, yet maintained open the possibility of a cut next year, if UK economic growth and inflation don’t pick up.

This morning, we’ll learn the UK’s revised GDP (Gross Domestic Product) growth figures for Q3, from July to September, which is forecast to remain at 0.3%.

This is the last major UK economic release of 2019. If the data surprises above or below this figure, it could affect the pound.

Eurozone Consumer Confidence Data Due as Lagarde May Surprise in 2020

Today the euro bloc’s consumer confidence figures for December are released by the EC at 15.00 GMT, and forecast at -7.0, from November’s -7.2.
However, this is a relatively minor release, so looks unlikely to earn the financial markets’ attention, unless the results arrive significant above or below forecasts.

This is the Eurozone’s last economic release of 2019, although turning to 2020, we’ll see what steps new European Central Bank (ECB) President Christine Lagarde takes, to prop up the bloc’s economic growth and inflation. If Ms. Lagarde surprises next year, this might impact the euro.

By James Lovick

Source: Pound Sterling Forecast

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Scotland returns to growth despite impact of Brexit woe

THE Scottish economy returned to growth in the third quarter, matching UK-wide expansion of 0.3 per cent, official figures show.

Business services and finance was a key driver of growth during the three months to September, according to the data published yesterday by the Scottish Government, but manufacturing contracted by 0.2% and construction output was flat.

The Scottish economy had contracted by 0.2% in the second quarter, matching the UK-wide performance in that period, having expanded by 0.5% during the opening three months of this year.

Comparing the year to September with the preceding 12 months, Scottish gross domestic product grew only 1%.

The dampening impact of Brexit-related uncertainty on economic growth in Scotland and the rest of the UK has been highlighted in a raft of surveys, and by economists.

CBI Scotland director Tracy Black said: “While it’s good to see that Scottish GDP growth recovered following a contraction in the second quarter, underlying momentum remains weak.”

Andrew McRae, the Federation of Small Businesses’ Scotland policy chair, highlighted the resilience of consumers and firms amid weak confidence, cost increases and political turmoil.

He said: “It’d be easy to dismiss these uninspiring growth figures, but they show that many people and firms have been getting on with business despite shaky confidence, rising overheads and political upheaval.”

In spite of manufacturing weakness, the broader Scottish production sector achieved a 0.9% quarter-on-quarter rise in output in the three months to September on the back of a 5.9% jump in electricity and gas supply. The services sector in Scotland grew by 0.2% quarter-on-quarter in the three months to September.

Comparing the third quarter with the same period of 2018, Scottish GDP was up 0.7%. This was adrift of a corresponding rise of 1% for the UK as a whole.

Scottish manufacturing output in the third quarter was down by 0.8% on the same period of last year. UK manufacturing output was flat quarter-on-quarter in the three months to September. However, third-quarter UK manufacturing output was down by 1.4% on the same period of last year.

Mr McRae called for politicians at Holyrood and Westminster to pay heed to the needs of smaller businesses.

He said: ”If in 2020 we want smaller firms to drive stronger local growth, MPs and MSPs must find time to think about their needs. Across the UK, we must see a new drive to end the late-payment crisis. And at Holyrood, we must see MSPs dismiss a half-baked effort to hand councils sweeping new tax powers.”

The FSB noted yesterday that earlier this year at the Scottish Parliament’s local government committee, opposition MSPs had united to force through a stage-two amendment to the Non-Domestic Rates (Scotland) Bill that it observed “could see councils take full control of the Scottish rates system and may end Scotland-wide small business rate relief”.

Scottish Finance Secretary Derek Mackay said: “While it is good news the economy has grown in the last quarter, it is unsurprising the overall pace of growth has slowed as a result of the continued uncertainty around Brexit.”

Sterling has come under pressure this week, with Prime Minister Boris Johnson spooking markets with proposed legislation to prevent extension of the Brexit transition period beyond the end of next year.

The pound was, at 5pm in London yesterday, trading around $1.3076, down nearly 0.4 cents on its previous close. It had tumbled by more than two cents on Tuesday, and is now below levels at which it was trading last Thursday as voters went to the polls.

Sterling had spiked above $1.35 in the wake of an exit poll published immediately after the polls closed at 10pm, which showed a clear Conservative majority.

Mr Mackay said: “Brexit remains the biggest threat to our economy. Just this week the Prime Minister has put the risk of a ‘no-deal’ Brexit back on the table by ruling out any extension to the transition period. This would be catastrophic for Scotland’s economy. Scotland did not vote for Brexit and the people of Scotland have the right to determine their own future free from Brexit as an independent member of the European Union.”

By Ian McConnell

Source: Herald Scotland

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Businesses expect UK economy to slow further in 2020

Businesses expect UK economic growth to slow further next year as the US-China trade war and Brexit uncertainty continue to weigh on industry.

The Confederation of British Industry (CBI), which represents 190,000 businesses, said on Monday it expects UK GDP to grow by just 1.2% in 2020, down from the expected 1.3% growth rate this year.

The CBI blamed Brexit for the weak economic picture, along with the US-China trade war which is hurting global growth rates.

“Should these dual headwinds subside, we expect a gradual pick-up in activity,” said Rain Newton-Smith, CBI’s chief economist.

“But the bigger picture is one of fairly modest growth over the next couple of years – growth that should be far better, given the UK’s relative strengths.”

The CBI’s weak forecast is in fact based on a best case scenario for Brexit that sees the UK leave the EU on 31 January and make smooth progress negotiating an “ambitious” trade deal with the EU that allows frictionless trade. If reality falls short of these expectations, the CBI expects GDP to grow by just 1% in 2020.

“Transforming a lost decade of productivity will only be possible if supported by a good Brexit deal – one that keeps the UK aligned with EU rules where essential for frictionless trade along with protecting the UK’s world-beating services sector, which accounts for 80% of our economy,” Newton-Smith said.

The CBI said consumer spending would continue to account for the lion’s share of growth, but government spending would also provide a growing boost thanks to major spending pledges from both main parties. Business investment is forecast to essentially flatline.

Separately, Make UK, the manufacturers lobbying group, on Monday downgraded growth forecasts for growth in its sector. Make UK and accountants BDO forecast manufacturing growth of just 0.3% in 2020, down from an earlier forecast of 0.6%. However, this would represent a pick-up on the 0.1% growth expected in 2019.

By Oscar Williams-Grut

Source: Yahoo Finance UK

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Getting Brexit done will not help UK economy, say academics

Carrying out Brexit will not improve the UK’s struggling economy but will usher in years more uncertainty about Britain’s trading relationships, a new report has said.

The hard Brexit that Prime Minister Boris Johnson is proposing will also limit the size of the UK market and raise trade costs, making it a less attractive place for investment, according to at the London School of Economics (LSE).

The report says the UK economy has suffered a “lost decade”. Productivity – output per hour worked – is 24 per cent below its pre-financial crisis trend and real wages are yet to return to 2008 levels.

A major factor has been low levels of investment, the report says, which was suppressed in part by austerity and more recently by Brexit uncertainty.

Johnson has said that leaving the European Union with a Brexit deal would boost the economy. Professional services firm KPMG said in September that a Brexit deal would mean “investment recovers some ground”.

However, John Van Reenen, professor of economics at LSE and an author of the report, said: “It is a mistake to believe that ‘getting Brexit done’ will improve things.

“First, there will be continued uncertainty due to years of negotiation over what form the UK’s future trading relationship with Europe will actually look like. Second, a hard Brexit is certainly bad for the economy compared with remaining in the EU.

“The UK will be a relatively smaller market with higher trade costs with our closest neighbours, so a less attractive place for investment.”

To address Britain’s “abysmal” performance on productivity and “pitiful” wage growth, more public and private investment is required, the LSE report said today.

All the major parties have promised to increase government spending in their manifestos ahead of the 12 December General Election, with Labour’s radical, but much-criticised, plans promising by far the most.

Van Reenen said: “It is welcome that the main parties are promising increases in spending to finance public investment, so long as such investments are based on solid evidence rather than political gimmicks and ministerial whims.”

By Harry Robertson

Source: City AM