The good news came from the Organisation for Economic Cooperation and Development (OECD), which forecasted the UK economy would grow by 1.6% this year, not by the 1.2% it first predicted in November 2016, and held global growth expectations for the year at a steady 3.3%.
It even spelled good news for the UK government, providing Chancellor Phillip Hammond with some headline statistics to take into today’s Spring Budget announcement.
But looking further down the line a less optimistic picture emerges for the UK with growth projections for 2018 stunted at just 1%.
So, is a 0.4% ‘upgrade’ really all that important when a column on the same chart anticipates the start of a slowdown in just a year’s time?
According to JPMorgan’s Mike Bell, the group’s global market strategist, the argument is more about how quickly the slowdown will hit, rather than any doubts over whether a slowdown will come.
He said: “With the OECD it’s important not to focus hard on the upgrade but to look at the direction of travel. Growth is expected to be 1% in 2018. Really what’s being argued here is what the pace of the slowdown will be.
“Some people expected a big hit after the Brexit vote, but our forecasts see a more gradual slowdown.”
JPMorgan’s economic forecasts anticipate similar levels of growth as the OECD and while “it’s not forecasting a recession”, Bell said, it is seeing a world where “inflation starts to weigh on the consumer” and growth slows as it loses the consumer spending that has fuelled it post-Brexit.
Inflation is one of the key risks highlighted by the OECD in its report.
“UK growth is expected to ease further as rising inflation weighs on real incomes and consumption, and business investment weakens amidst uncertainty about the United Kingdom’s future trading relations with its partners,” the report stated, adding that even with resilient household spending and Bank of England policy the “pace of expansion in 2016 was lower than in previous years”.
Throw into the mix a barrage of political uncertainty in Europe, President Donald Trump and unprecedented talks over Brexit soon to start, and it all makes for rather uncertain waters for investors in the coming years.
