UK economic outlook: growth cut, inflation raised on Brexit pain

• Growth rates cut compared to pre-referendum estimates
• Inflation estimates raised on weaker sterling, but possibly not far enough
• Focused spending on infrastructure and innovation is welcome

Growth estimates cut
UK GDP’s growth rate has been downgraded relative to pre-referendum expectations, with a cut from 2.2% to 1.4% for 2017E and from 2.1% to 1.7% for 2018E.

Inflation estimates raised
Following post-referendum sterling weakness, estimates for UK inflation were increased from 1.6% to 2.3% for 2017E and from 2.0% to 2.5% for 2018E.  This compares to 2.4% and 2.8% for 2017E and 2018E respectively for UK swap breakeven rates.

​Rising interest rate environment
With higher inflation expectations there is upward pressure on Bank Rates after a protracted “lower for longer” regime.

Spending focus: infrastructure and innovation 
The government spending plans shows clearly defined cous – with budget to increase infrastructure spending from 0.8% of GDP today to 1.0-1.2% from 2020.  This supply side stimulus that focuses on productivity gains is welcome if fiscally manageable.



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