Analysts at Scotiabank explained that the UK economy is expected to maintain decent growth of around 2% this year, down from 21⁄4% in 2015.
Key Quotes:
“Growth in consumer spending is forecast to remain supportive, but will likely ease over the course of the year as real income gains slow on the back of gradually rising inflation. Some offset, however, could come from a pick-up in UK exports alongside an improving euro zone recovery and prospects of a weaker GBP boosting export competitiveness.
Monetary policy will also remain highly supportive of growth as expectations for Bank of England (BoE) policy tightening continued to be pushed back. Given below target inflation and subdued wage gains, we believe that the timing of the first BoE rate hike is unlikely until at least May or August of 2017. The UK’s EU referendum will also likely generate increased uncertainty ahead of the June 23rd vote. UK Prime Minister David Cameron was able to secure a deal on the UK’s relationship with the EU at the February EU leaders’ summit.
However, critics have argued that it falls short of what Cameron originally promised as concessions were made on migrant and welfare benefits. While opinion polls suggest that support for the “leave the EU” and “remain in the EU” camp have converged sharply in recent months, we maintain the view that the UK will ultimately vote to stay in the EU.
Still the debate leading up to the referendum is expected to be quite negative, and uncertainty surrounding the outcome poses significant downside risks to the outlook. The biggest risk facing the UK economy is that a loss of consumer and business confidence could weigh on household spending as well as hiring and investment intentions.”
(Market News Provided by FXstreet)