Last week the latest UK data showed that the UK economy grew at 0.5% in Q4, equating to a 1.5% expansion for the whole of 2017. The number was touted as evidence of the UK’s underperformance relative to the rest of the world with the 2016 Brexit vote used as the primary reason for the slowdown from 2016.
It is certainly true that as a result of the 2016 Brexit vote that we have seen a slowdown in the UK economy, however the expansion has still flown in the face of some of the predictions of some pretty significant global bodies. Furthermore the UK economy has still managed to grow for 20 quarters in succession.
The EU Commission, IMF, OECD, CBI and the Bank of England all respectable global institutions predicted a much slower rate of annual expansion for the UK economy in 2017, with the highest number coming in at 1.3% with the CBI coming out closest.
As someone who has more than a passing interest in economics these predictions are nothing short of woeful, and to some extent explain why a good section of the economics profession is viewed with some suspicion.
This is a shame as I speak to a number of very good economists on a regular basis but it seems that if you work for a big institution the scope for some creative thinking seems to disappear into a fog of groupthink.
Last week we were told by Bank of England governor Mark Carney that the Brexit vote had already cost the UK economy 1% of GDP and would cost 2% of GDP by year end. Given that the Bank of England can’t even forecast GDP accurately I’m not too sure I can place too much faith in these estimates of how much output has been lost, and it’s not as if you can calculate what the counterfactual is likely to be.
Whichever way the Brexit vote had gone the UK economy would have faced a difficult few years as it tries to overcome the significant structural changes that need to be made to ensure that the economic expansion that has been in place for 20 successive quarters is able to continue until the end of the decade, and beyond.
Recent events in the construction sector point to some of the problems afflicting the UK as Carillion’s problems will testify. This means that for the first part of 2018 construction is likely to be a drag on the UK economy, something that is likely to be borne out by this week’s construction PMI data.
2018 is likely to be a pivotal year for the UK economy as our future relationship with the EU starts to take shape. It would be nice if certain elements of the establishment stopped fighting old battles and began to engage more constructively on the battles ahead. Sadly, I am not optimistic on this point as the recent furore over the Brexit impact assessements will testify.
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