The Economic Future: Cautious Optimism Reinforced

Ten days after we posted our predictions for the year ahead which urged cautious optimism, it seems the rest of the world has caught up! Advice from several quarters on the state of the global economy and Britain in particular, suggests only short-term optimism with reservations about prosperity for Britain as potential for growth remains overshadowed by Brexit.

The World Economic Forum will be taking place this week at Davos, Switzerland. Ahead of the meeting, the International Monetary Fund (IMF) has made some positive announcements regarding the global economy; global output is estimated to have grown by 3.7% in 2017, which is 0.1% faster than projected in autumn, and 0.5% higher than in 2016. America, China and Continental Europe all received better figures, but the UK was the only advanced economy to receive a downgrade. In relation to inward looking policies and Brexit trade negotiations, the IMF stated “An increase in trade barriers and regulatory realignments, in the context of these negotiations or elsewhere, would weigh on global investment and reduce production efficiency, exerting a drag on potential growth in advanced, emerging market, and developing economies.” As a result, the UK’s year on year % growth was downgraded to 1.5 for both 2018 and 2019.

Lord Jim O’Neill, the former Conservative Treasury minister and Remain supporter; however, is optimistic that growth forecasts will be upgraded as China, the US and Europe show increased activity, and that this growth would dwarf any Brexit hit. Speaking to the BBC he stated that “I certainly wouldn’t have thought the UK economy would be as robust as it currently seems, that is because some parts of the country, led by the North West [of England], are actually doing way better than people seem to realise or appreciate. As well as this crucial fact, the rest of the world is also doing way better than many people would have thought a year ago, so it makes it easier for the UK.” It has been suggested (by Cambridge Econometrics) that growth across the UK could be on average 3% lower by 2030 than it would have been if Britain remained within the EU’s single market and customs union. Lord O’Neil (also formerly a Goldman Sachs economist) responded that “If that’s the worst that Brexit will deliver, then I wouldn’t worry about it. Now, my own view is if we go for a really hard Brexit or a no-deal Brexit, we’ll probably suffer more than that 3%. But if it is only 3%, what’s going on with the rest of the world – helping us – and with productivity improving, that will easily dwarf a 3% hit over 13 years, easily.”

PwC released its annual survey of global chief executives yesterday, with further notes of “anxious optimism”. A record 57% of CEOs surveyed globally, believe global economic growth will ‘improve’ over the next 12 months, the highest figure recorded since PWC began asking this question in 2012. In the UK, the proportion of CEOs optimistic about economic prospects has more than doubled to 36%, and the 193 UK CEOs surveyed are even more confident about their own businesses, with 88% expecting growth in the coming 12 months. This brighter outlook however, is “tempered by concerns in key areas, including uncertainty in the global trading environment and emerging technology issues, notably cyber security.”

The Office of National Statistics today released figures on public sector borrowing, revealing that net borrowing (excluding public sector banks) decreased by £6.6bn to £50bn in the current financial year (to date); making it the lowest year to date net borrowing since 2007. The release further added that Carillion’s declared insolvency may have future implications on public sector finance. The decrease in borrowing is in large part due to a £1.2bn rebate received from the EU as a result of reductions in the bloc’s budget and changes to contributions. The BBC reports that for the next two months the government will have more money coming in than it needs (due to income from tax returns) and therefore borrowing for the financial year as a whole, will most likely be lower than £50bn. They too, urge cautious optimism however, “as growth and productivity for the next few years are now predicted to be worse than previously thought, meaning balancing the books is going to take longer.”

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