Julia Irvine 13 Sep 2019 10:37am

ICAEW downgrades UK growth forecast

ICAEW has downgraded its growth forecast for the UK economy from 1.5% to 1.1% against a background of continuing Brexit uncertainty, falling business investment and declining output

According to the latest ICAEW economic insight for Q3, business investment fell by 0.5%, continuing the downward trend of the past 18 months. A Brexit deal could bring the decline to a halt but is unlikely to persuade businesses to boost their investment significantly while uncertainty lasts about  the UK’s future relationship with the EU.

ICAEW also suggests that structural and measurement issues – such as the focus on services rather than manufacturing and the blurring of lines between consumer and investment spending – will also have a dampening effect on investment.

Meanwhile, output fell by 0.2% in Q2 for the first time since 2012, as a result of continuing manufacturing weakness and companies decelerating their stockpiling activity as the first Brexit deadline came and went.

“After the 2008 recession business investment recovered, but since 2015 it has stalled and gone into reverse,” said ICAEW chief executive Michael Izza. “While the overriding priority for the government must be to get a good deal, an investment boom is unlikely even if the UK secures an ‘orderly’ departure from the EU. A withdrawal agreement would not eliminate uncertainty over the future UK-EU trading relationship, and we know structural issues means firms are more likely to spend money on labour than capital.

“Even when the cloud of Brexit uncertainty lifts, measured growth in capital spending is unlikely to see a dramatic pickup, which would continue a long-running theme that was apparent even before the financial crisis.”

The one bright constant in recent quarters has been the resilience of the jobs market. ICAEW believes that this will continue – albeit at a slower rate of growth. The recent acceleration in pay rises is likely to be temporary, however, and may well have already peaked.