Growth spurt predicted for UK economy in 2021

Growth in the UK economy should pick up sharply in 2021 – as long as the nation reaches a post-Brexit trade deal with the European Union, according to the latest forecast from the Confederation of British Industry.

David Sapsted

2 December 2019

While the Confederation of British Industry (CBI) foresees modest growth of 1.2 per cent over 2020, the forecast for the following year stands at 1.8 per cent, based on the assumption the UK "has clear line of sight to an ambitious trade deal" with the European Union (EU).Such a deal, according to the CBI, would involve alignment with EU rules to ensure frictionless trade, including protection for the UK’s services sector.The report says, "The main risk to the outlook remains continued Brexit uncertainty, particularly the threat of a no-deal Brexit. On the global front, a further escalation in US-China trade tensions would deliver further hits to world growth and trade, with a knock-on impact on the UK economy."

Remarkable business resilience

Rain Newton-Smith, CBI chief economist, says that UK businesses have continued to show remarkable resilience after more than three years of "crippling uncertainty" since the vote to leave the EU. "In that time," she adds, "firms have continued to go about their day jobs, playing a vital part in driving economic growth. But they’ve been beset by headwinds. Alongside perennial Brexit uncertainty, they are also contending with softer global demand.“Should these dual headwinds subside, we expect a gradual pick-up in activity. But the bigger picture is one of fairly modest growth over the next couple of years – growth that should be far better, given the UK’s relative strengths.”

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Newton-Smith says, “The UK’s potential has been held back by more than a decade of weak productivity growth and stop-start investment. It’s vital that the next government prioritises lifting productivity and living standards by addressing day-to-day business concerns, including reforming the apprenticeship levy, raising UK R&D expenditure and tackling long-term challenges on skills. “But transforming a lost decade of productivity will only be possible if supported by a good Brexit deal – one that keeps the UK aligned with EU rules is essential for frictionless trade along with protecting the UK’s world-beating services sector, which accounts for 80 per cent of our economy.“Let’s be clear: a no-deal Brexit would put the brakes on UK growth and realise businesses’ worst fears. What’s needed is a clear and committed line of sight to an ambitious deal that will protect the UK’s economy and future prosperity. If firms can see a close deal with the EU on the horizon, with no further Brexit cliff-edges to worry about, investment will be unlocked.”

Modest growth in 2020

The forecast says that growth in the economy would be largely driven by consumer spending, along with a contribution from government plans outlined in the September Spending Review.Business investment is expected to grow modestly in 2020, as Brexit uncertainty gradually wanes "under our assumption that the UK begins a smooth transition to a new relationship with the EU", before picking up in 2021."In the case of more prolonged Brexit uncertainty, we would expect business investment to be weaker," adds the CBI. "Our forecast sees a downgrade to global growth, which has continued to disappoint during the first half of 2019, reflecting regulatory tightening in China, slower Eurozone growth and economic stress in some emerging markets."Increasing trade tensions are also weighing on investment and sentiment. We still expect an improvement in global growth ahead, particularly as momentum in the Eurozone picks up and the emerging markets outlook stabilises."