Moody’s revises UK growth forecast down

Moody’s revises UK growth forecast down

Economic activity in the UK is expected to deteriorate, as uncertainty about the future of the country’s economic path dampens investment.

Credit ratings agency Moody’s has revised its 2017 forecast for GDP growth in the UK, pulling it down to 1 per cent from the previous projection of 1.2 per cent.

It also expects UK GDP to stand at 1 per cent in 2018.

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In August, Moody’s predicted the UK would avoid falling into recession as growth picked up.

According to the firm’s latest global macro report, these revised growth forecasts reflect that uncertainty around the future of the UK economy will dampen business investment spending and consumption, particularly if businesses hold back on hiring.

This comes after research from the Institute for Public Policy Research found many financial firms had stopped advertising jobs after the UK voted to leave the European Union.

While Moody’s had based its prediction on the UK being able to negotiate a free trade agreement with the EU, it said a failure to negotiate could “substantially” worsen sentiment, trigger a material correction in asset prices, a house price downturn, and further declines in investment and consumption spending.

“The rise in protectionist discourse globally could also prove to be a hurdle for the UK, and challenge long-term prospects,” the report stated.

According to Moody’s, the upside from the sharp fall in the pound is “limited" as long as the global economic outlook remains subdued, with trade in the UK maintaining a normal level despite exports being cheaper.

Moody’s also expects consumer price inflation to accelerate to 2.2 per cent next year, from the current figure of 0.7 per cent.

“We expect that the Bank of England will tolerate a short-term rise in inflation above target and maintain the [base] rate close to zero in the near term, as well as consider other easing measures, if necessary to support the economy.”