InvestmentsSep 12 2018

KPMG expects UK to grow despite Brexit

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KPMG expects UK to grow despite Brexit

The UK economy could grow by as much as 0.6 per cent in 2019, even if Britain leaves the European Union without a deal, according to KPMG's chief economist.

Yael Selfin acknowledged there could be some negative impact from the split but she believed the government would do enough to get the economy back on track.

She said: "The 0.6 per cent number is an annual number, and within it there could be a couple of quarters of negative growth, but what would then happen is people or the government would have to invest in whatever the situation is, whether that is customs people or something else, and that will boost the economy a bit."

She added: "The problem is, that isn’t the most productive use of resources for the long term."

Ms Selfin said sterling may depreciate in value under a disorderly Brexit but this may not necessarily lead to a boost in exports, because regulation would make trade more expensive.

She said in this context the tariffs that would likely be placed on UK exports in the event of a disorderly Brexit would be a relatively minor concern.

Jeremy Lawson, economist at Aberdeen Standard Investments, said he would expect the uncertainty caused by a hard Brexit to outweigh any benefits brought by the weaker currency. 

Speaking before the Treasury select committee last week, Bank of England governor Mark Carney said a no-deal Brexit could take two forms.

The first of these was the UK leaving without a deal but with a transition agreement, and the second was without such a transition agreement, which would require action from the Bank.

Ms Selfin’s comments came after UK GDP growth for the three months to the end of July was 0.6 per cent, which was ahead of expectations.

The latest data for UK unemployment, released by the Office for National Statistics showed UK unemployment at 4 per cent, a slight fall on the previous month, while wages grew by 2.9 per cent in July, considerably ahead of the 2.4 per cent inflation rate in that period.

Ms Selfin said even if there was a Brexit deal agreed, she expected the UK economy to grow at its slowest pace for a decade in 2019.

She said this was because there was little evidence of spare capacity in the economy, that is resources to be brought into use if economic conditions improved.

Ms Selfin cited the low unemployment rate as an example of this, and said the only way economic growth in the UK could be significantly improved was through improved productivity growth.

Richard Penny, the former Legal and General fund manager who is about to launch the Crux UK Special Situations fund, said a hard Brexit could see sterling fall sharply in value which, due to the preponderance of overseas earners in the FTSE 100, could see the stock market rise.

But he said it would have severe consequences for the domestically-focused businesses in the market and, with that in mind, his fund would avoid investing in those companies. 

david.thorpe@ft.com