Business

Economic growth forecast raised as Brexit vote response hailed

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THE Organisation for Economic Co-operation and Development (OECD) has raised its growth forecast for the British economy, months after warning the UK would be hit by an immediate shock following the Brexit vote.

The think-tank upped its UK growth projections for 2016 by 0.1 per cent to 1.8 per cent, highlighting a strong pre-referendum economic performance and prompt action by the Bank of England.

"While markets have since stabilised, sterling has depreciated by around 10 per cent in trade-weighted terms since the referendum. For 2016, GDP growth has been supported by a strong performance prior to the referendum, even though business investment contracted," the OECD said.

The Bank was praised for its swift action following Britain's decision to quit the European Union, adding that its strong policy response helped to stabilise markets and also contributed to "moderate scenarios" following the June 23 vote.

Prior to the vote, the OECD had issued stark warnings that UK growth would be pummelled in the event of a Leave outcome.

A number of other economists have also brightened their outlook for the UK, upping their growth forecasts as Brexit uncertainty eased following a resilient performance from gross domestic product (GDP) in the run-up to the vote, coupled with a string of surveys pointing to a rebound in activity following July's slump.

Nevertheless, the OECD said growth next year would be "well below" pre-referendum forecasts.

"GDP is projected to slow to 1 per cent in 2017, well below the pace in recent years and forecasts prior to the referendum. Uncertainty about the future path of policy and the reaction of the economy remains very high and risks remain to the downside."

It added that on the UK economy's long-term outlook, a future trading arrangement with the EU and other countries will be "critical to its economic prospects".

The group warned in July that Britain's decision to leave the EU could result in a 3 per cent loss in GDP by the end of the decade and is likely to hit employment.

Globally, the OECD said weak trade and "financial distortions" are exacerbating slow growth, with the world economy expected to grow at a slower pace this year than in 2015, with only a modest uptick expected in 2017.

Its outlook also warned a "low-growth trap" has taken root, as poor growth expectations further depresses trade, investment, productivity and wages.

Global growth is now projected to come in at 2.9 per cent this year, down from previous forecasts of 3 per cent.

Meanwhile UK households' expectations about their finances have held steady despite the "surprise" Brexit vote, a survey suggests.

The Markit Household Finance Index said the current financial strain on households remains "relatively muted", with a stable picture emerging amid rising workplace activity and low inflation.

The index posted an overall reading of 44.8 in September, showing little change from a reading of 44.9 in August.

Readings above 50 suggests households' financial situations are improving and ones below this level suggest they are getting worse.

While the latest reading suggested households are continuing to feel under financial strain, pressures have been "relatively muted throughout 2016 on average, even in the face of June's vote to leave the EU", the report said.

The report is based on a survey of 1,500 people across the UK aged 18 to 64.

It found expectations for finances in 12 months' time also remained broadly steady, with a reading of 49.6 pointing to only a slightly downbeat financial outlook.

Construction sector workers were the most upbeat about their financial prospects, while manufacturing employees were also relatively optimistic.

By contrast, those working in finance and business services had the bleakest outlook since May 2012.

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