Britain’s economy should grow faster in 2018 and 2019 as the expected agreement of a Brexit divorce bill – reported by the Daily Telegraph as €45bn to €55bn – should inspire more confidence in businesses and households.
Berenberg Bank now expects a sharp pick-up in business investment in the coming months as well as a more modest increase in consumer spending. As a result it has raised its GDP growth forecasts by 0.1 percentage points in each of the next two years, with growth rising from 1.5pc this year to 1.8pc in 2018 and 1.9pc in 2019.
“2017 was probably the low point,” said Berenberg’s senior UK economist Kallum Pickering, as he cut the probability of a ‘no deal’ Brexit from 30pc down to 20pc.
“With the chance of a soft Brexit rising, the global upturn can now begin to rub off on the UK more. Higher business and household confidence from the lower risk of a hard Brexit should underpin stronger gains in long-lived consumption and investment.”
The Brexit talks are still far from over, however.
Andrew Bailey, chief executive of the Financial Conduct Authority, urged the Government and the EU to agree a transition period as soon as possible to avoid a crunch in which contracts across the UK-EU border are thrown into a legal void.
“There does need to be a transition agreement, we need to agree it very soon now, frankly,” he told the House of Lords EU Financial Affairs Sub-Committee.
“There is obviously then a question as to what rules of engagement the EU and UK agree during that period. In many ways I am not so fussed about what they are, provided that they are they are clear. What we cannot have is ambiguity.
“We could live with world where the UK goes on implementing EU legislation rules, and obviously could live in one where we don’t.”
That is just as important for the EU as it is for the UK, he said, as financial contracts spanning the border are vital for the continental businesses that rely on British banks and insurers.
The Government proposed a new Industrial Strategy earlier this week to attempt to boost domestic growth, productivity and wages.
However business secretary Greg Clark told MPs that much of the data used to measure this may be unreliable, making it hard to analyse the current situation or to compare the UK’s productivity levels with other countries. Britain has lower levels of output per hour worked than countries such as Germany or the US.
“I think we do have to be cautious about drawing too many inferences from data in the relatively short term,” he said.
“There is a big debate as to whether it is capturing completely the real picture.”
Mr Clark pointed to the different structure of the UK economy, which relies more on financial services than those other countries, and said the impact of new technologies may not be properly counted in the official numbers.
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