Credit ratings agency Moody’s expects there to be modest growth in the UK economy, with forecasts now looking more positive, just two months after the Brexit vote rattled markets.
In its assessment of the global economy, the ratings agency revised forecasts for the UK and now expects GDP to nudge up 1.5 per cent in this year and 1.2 per cent in 2017.
Previously, it had estimated the UK economy to grow 1.8 per cent in 2016, and 2.1 per cent next year.
These findings come after the National Institute for Economic and Social Research predicted the British economy would decline by 0.2 per cent between July and September this year.
NIESR also warned there is an “evens” chance of the UK dipping into a recession by the end of 2017.
Moody’s expected “limited” Brexit-related spillovers into the euro area. However, the report predicted some deterioration in the eurozone and maintained its growth forecast at 1.5 per cent for 2016 and 1.3 per cent next year.
Moody’s Investors Service stated growth in advanced economies will remain at low levels, but will be stable.
Lloyds Bank, which looked at the levels of investor confidence in the UK, saw that positive market sentiment was bouncing back after Brexit, with fewer people taking shelter in “safe haven” assets.
Madhavi Bokil, senior analyst at Moody’s, said uncertainty around the future of the economy outside the common market will dampen business investment and consumer spending over the second half of this year and throughout 2017.
However, she noted falls in sterling will mitigate some of the negative effect in the short-term by providing a boost to exports.
“Our baseline growth forecasts also incorporate the assumption that some fiscal loosening and monetary policy accommodation will support the economy, limiting the slowdown in growth.”
Earlier this month, the Bank of England launched a number of measures, including the first base rate cut in seven years, as it looked to prevent a recession.
Moody’s analysis also warned that a material correction in asset prices, a house price downturn, or a large decline in consumption, could represent downside risks to the forecast for the UK.
“If these were to materialise, it would require us to revise our baseline,” the report added, noting a change in US policy stance following the presidential election could have a detrimental impact on global confidence and growth.
Ms Bokil said she expects the US Federal Reserve to resume its interest rate tightening cycle at the end of this year, which could bring about more volatility in bond, equity and currency markets.
Members of the Fed’s Open Market Committee were divided at its last meeting over the potential timing of the next interest rate rise, according to its July minutes.
katherine.denham@ft.com
