UK government has lowered output path in the wake of Brexit - ANZ

Research Team at ANZ, notes that the UK Chancellor Philip Hammond delivered the Autumn Statement providing the first post-Brexit update on fiscal policy and it showed that the government has cut its forecasts for real GDP to 1.4% from 2.2% previously.

Key Quotes

“In 2018, the government revised down growth to 1.7% from 2.1%. Thereafter, GDP is expected to grow at 2% per annum. In the long run, UK output is expected to be 2.4 percentage points lower than it was prior to the EU referendum. The downgrade to growth reflects the negative impact of heightened uncertainty and rising inflation on investment and private consumption growth.”

“As a result of the lower growth profile, the budget deficit is expected to widen out and has been revised up by a cumulative GBP122bn over the next five years. The statement contained measures supporting housing construction (GBP1.4bn) and housing infrastructure (GBP2.3bn), some modest infrastructure spending on roads (GBP1.1bn), reaffirmed plans to cut corporation tax to 17% by 2020, and various tax changes and an increase in the living wage that will come into effect from April next year.”

“Against the dollar, sterling was left largely unchanged by the statement, although its recovery against the euro continues. There has been no new information on Brexit recently and the next focus will be the Supreme Court hearing in early December on Article 50. In the meantime, the better than expected economic backdrop in the UK against rising political anxiety in Europe is fuelling GBP outperformance vs EUR, which has the potential to run further in the near term.”