Chancellor Philip Hammond delivered the 2019 Spring Statement to the House of Commons, and stated that the UK economy had ‘reached a turning point’.
The Office for Budget Responsibility (OBR), which produced the latest economic forecasts for the Spring Statement, said: ‘Economic growth in the UK and globally has slowed since the Budget in October. But tax receipts have performed better than we expected in the final months of 2018/19, and we judge that much of this buoyancy will endure.’
The Shadow Chancellor, John McDonnell, lambasted the Chancellor’s Statement, saying: ‘He’s boasting about the deficit. He’s not eliminated the deficit as we were promised by 2015. He’s simply shifted it onto the shoulders of headteachers, NHS managers, local councillors and police commissioners and, worst of all, onto the backs of many of the poorest in our society.’
Meanwhile, Caroline Lucas, Co-Leader of the Green Party, stated that the government used the Spring Statement to celebrate a ‘tiny improvement in growth’. She said: ‘GDP isn’t a real measure of our society. True indicators are people being treated in hospital corridors, and foodbank use shooting up. Our economy is designed to fail people – and it needs an overhaul.’
The Institute of Chartered Accountants in England and Wales (ICAEW) has suggested that confidence amongst businesses has ‘slumped’ as a result of ongoing Brexit uncertainty.
The ICAEW’s Business Confidence Monitor recently revealed that confidence deteriorated from -12.3 in the fourth quarter of 2018 to -16.4 during this quarter. According to the Institute, every sector currently stands in ‘negative territory’, excluding the IT and communications industry.
Additionally, the ICAEW stated that it expects GDP growth of just 0.1% this quarter.
‘Companies at the moment are unclear about the future,’ said Michael Izza, Chief Executive of the ICAEW.
‘Directors have the exceptionally difficult task of explaining within their annual reports the impact Brexit might have on their business models and operations. Companies are making decisions now about jobs, supply chains, headquarters and asset locations – incurring significant, and possibly unnecessary, cost and upheaval.
‘We fear the destructive effects of a no deal outcome on the economy, so urge our politicians to work together to break the Brexit deadlock and help restore business confidence.’
The International Monetary Fund (IMF) has warned the UK that a ‘no deal’ Brexit could ‘damage the global economy’.
In a recently published report, the IMF downgraded its global growth forecast for 2019 to 3.5%, and its forecast for 2020 to 3.6%.
A no deal Brexit ‘could cause global growth to worsen’, the IMF warned.
Within the report, the IMF wrote: ‘A range of triggers beyond escalating trade tensions could spark a further deterioration in risk sentiment, with adverse growth implications, especially given the high levels of public and private debt.
‘These potential triggers include a no deal withdrawal of the UK from the EU, and a greater-than-envisaged slowdown in China.’
Commenting on the matter, Gita Gopinath, Chief Economist at the IMF, said: ‘As of mid-January, the shape that Brexit will take remains highly uncertain.
‘We have done our estimates of how costly it would be on the British economy to have a no deal Brexit, which would be a decline of long-run GDP of about five to eight percentage points. It is absolutely essential that [the Brexit] uncertainty is resolved sooner rather than later.’
A study carried out by economic think tank the National Institute for Economic and Social Research (NIESR) has suggested that the government’s Brexit deal will cost the UK £100 billion per year by 2030.
The study also indicated that Gross Domestic Product (GDP) will be 3.9% lower by 2030.
The NIESR predicts that, by the end of 2030, total trade between the UK and the EU will fall by 46%; the decline in GDP will cost each UK citizen £1,090; foreign direct investment will fall by 21%; and tax revenue will fall by between 1.5% and 2%.
Commenting on the study, Garry Young, Director of Macromodelling and Forecasting at the NIESR, said: ‘Leaving the EU will make it more costly for the UK to trade with a large market on our doorstep, and inevitably will have economic costs.’
Meanwhile, a separate study carried out by the London School of Economics, King’s College London and the Institute for Fiscal Studies (IFS) has suggested that the deal could leave the UK economy ‘as much as 5.5% smaller’ in a decade’s time.
Responding to the studies, a government spokesperson stated: ‘This deal will protect jobs and our economy, while respecting the result of the referendum.
‘It delivers an economic partnership with the EU closer than any other country enjoys, is good for business and is in our national interest.’
The International Monetary Fund (IMF) has warned that Brexit will adversely affect the UK economy, alongside the economies of EU member states.
In a recently published report, the IMF stated that there will be ‘no winners from Brexit’.
The report predicts that, if a trade deal cannot be struck between the UK and the EU, the negative macroeconomic effect generated by Brexit will be ‘disproportionately larger’ for the UK, compared to other EU member states.
The IMF suggested that, if the UK leaves the bloc without an advantageous trade deal, EU economic growth could stall by up to 1.5% of GDP, whilst UK economic growth could take a significant hit of almost 4% of GDP.
Consequently, the new Brexit Secretary, Dominic Raab, stated that the government will ‘step up’ its planning for a no-deal scenario in order to ensure that the UK is ready for Brexit.
Similarly, the Financial Conduct Authority (FCA) revealed that it has been working with the Bank of England and the government to make sure that contingencies and safeguards are in place, should a so-called ‘hard Brexit’ occur.
The European Commission has also warned its member states to be prepared for a potential cliff-edge Brexit scenario.
The British Chambers of Commerce (BCC) has warned that the UK economy is set for its ‘weakest year’ of Gross Domestic Product (GDP) growth since 2009.
In its latest economic forecast, the BCC has downgraded its growth expectations for the UK economy.
It now predicts that GDP growth will reach 1.3% – a slight fall when compared to its previous forecast of 1.4%. The BCC also downgraded its GDP forecast for 2019 from 1.5% to 1.4%.
The business group attributed the revised figures to a ‘lacklustre outlook’ for consumer spending, business investment and trade.
It predicts that growth in business investment will slow from 2.4% in 2017 to 0.9% in 2018, and stated that ‘high costs’ associated with doing business in the UK have contributed to the downgrade, alongside ‘ongoing uncertainty’ in regard to the UK’s future relationship with the EU.
‘A decade on from the start of the financial crisis, the UK now faces another extended period of weak growth amidst a backdrop of both domestic and global uncertainty,’ said Dr Adam Marshall, Director General of the BCC.
‘Our forecast should serve as a wake-up call to the government – as it demonstrates that ‘business as usual’ is not an option when it comes to the economy.
‘With firms facing ongoing Brexit uncertainty, increasing global protectionism and instability in some parts of the world that will impact on costs and profits, now is the time for more robust action to support business confidence and investment.’
The Trades Union Congress (TUC) has suggested that growth in the UK economy is being adversely affected by an ‘avalanche of cuts’.
Preliminary estimates published by the Office for National Statistics (ONS) show that, between January and March 2018, growth in UK Gross Domestic Product (GDP) increased by just 0.1%, compared to growth of 0.4% in the previous quarter.
Although Chancellor Philip Hammond attributed some of the slow growth to the hazardous weather conditions that affected the UK in February and March, the ONS reported that this ultimately had ‘very little impact’ on the growth of the economy.
Drilling down into the various sectors that constitute GDP, the agricultural and construction sectors experienced falling growth, with these industries down by 1.4% and 3.3% when compared to the previous quarter. Meanwhile, production showed the highest growth at 0.7%. Finally, the services sector showed an increase of 0.3%, and proved to be the ‘largest contributor to GDP growth’.
The TUC believes that the pattern of low growth has been caused by ‘government cuts and underinvestment’. It claims that there is a need to modernise Britain’s infrastructure, and stated that this can be achieved by improving UK roads and railways, and by supplying high-speed broadband and ‘clean energy’ to ‘every part of Britain’.
Frances O’Grady, General Secretary of the TUC, said: ‘The government should set up a National Investment Bank to upgrade roads and rail.
‘And it’s time to get our public services back up to strength. Schools, hospitals and other vital services are part of Britain’s core economy. If they remain starved of resources, the rest of the economy will continue to struggle too.’