UK macro outlook: Brexit taking its toll on the economy
|In this piece, we present our updated UK macro outlook
Brexit continues to take its toll on the British economy. Underlying growth is likely to remain in the range of 1.0-1.5% in the years ahead. The labour market has been quite resilient for a long time but recently we have become more concerned.
The general election is decisive for the Brexit outcome but unfortunately, it is very difficult to predict the outcome.
The acknowledged MRP model from YouGov predicts The Conservative Party will win an absolute majority and so make it possible for Boris Johnson to pass his Brexit deal before Christmas, which is now our base case. The UK will then leave the EU by 31 January 2020 and start the negotiations on the future relationship. There is risk of a "no deal Brexit" by 31 December 2020 if no deal is reached or the transition period is not extended.
If the opposition wins, we expect a second EU referendum. The risk is another hung Parliament with no stable majority, which would require another extension.
We expect the Bank of England to cut at its meeting in January 2020 and think it is a close call whether or not there will be another cut in the second half of 2020.
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