ANALYSIS | Economic Outlook
Two leading economists look forward into 2017 The Road Ahead
Barry Naisbitt Chief Economist, Santander UK plc
W
e are in an unusual period for economy-watching. Aſter the result of the referendum there
has, understandably, been an enormous amount of interest in how this might be affecting the economy. Writing in early November, late June seems a long time ago. But in terms of economic data, it really is not. Part of the reason for this is that the data on how the economy is performing is published aſter the event. This reflects a process in which, as a bit of a caricature, requests to companies for their performance data are sent out, then filled in, returned, collated and finally published. So what might be called ‘official’ economic data only appears with a time lag, and sometimes a considerable one. Much more immediate is ‘unofficial’ economic data usually from regular surveys of, for example, confidence or activity. In the immediate period aſter the
referendum result, confidence and activity surveys generally showed an immediate dive. But in succeeding months there has
46 DIRECTOR OF FINANCE
been a general rebound. So that, aſter an initial negative view of economic activity prospects at the start of the third quarter of this year, the outlook turned more positive. We now have the official view of activity in the third quarter (well, the preliminary estimate) and this shows that the economy grew by 0.5%, with momentum from a stronger than expected previous quarter (when GDP grew by 0.7%) probably carrying through. The service sector continued to be the engine of growth, with output up 0.8% in the quarter. This continuation of economic growth
was at a stronger pace than the Bank of England (and many other organisations) expected a few months ago. So the Bank of England has recently revised up its forecasts for economic growth this year and next, although it continues to expect growth next year to be slower than this year and to be below 2%. Its recent forecast also revised down expectations for growth in the medium term, reflecting continued uncertainties. One key
unknown is how strong companies’ investment spending growth will be in the light of these economic uncertainties. The evidence on investment intentions as reported by the Bank of England’s agents has not been too encouraging this year. One major change has been the sharp adjustment to the value of sterling. The effect of the fall in sterling since late June against the US dollar and the euro has started to be seen in domestic prices, with rises in petrol prices and a dispute about a potential price rise for jars of Marmite bringing notable headlines. The rate of
How households and companies react to higher inflation is going to be a key issue for economic prospects
inflation was expected to pick up from the near zero inflation in the early part of this year anyway, largely reflecting the end of falling oil prices and their rebound. But the fall in sterling is expected to reinforce
dofonline.co.uk
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52