Finance report: Growth forecasts for Eurozone and UK slashed

Forecasts for economic growth in both the eurozone and the UK this year were slashed yesterday as economists faced up to a global slowdown prompted by the US-China trade war, Brexit and falling consumer confidence.

Graphic map of the UK and EU with Union Jack and EU flag colouring
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The Bank of England cut the 2019 forecast for GDP growth from 1.7 to 1.2 per cent while, in Brussels, the European Commission reduced the eurozone prediction to 1.3 per cent from its previous forecast of 1.9 per cent. It has also trimmed its 2020 forecast to 1.6 from 1.7 per cent.

What's to blame for the EU/UK fiscal growth downgrade?

Commissioner Pierre Moscovici put most of the blame on the US-China trade war and on weaknesses within Europe, particularly Italy - now technically in recession - and Germany, where the growth forecast was cut from 1.8 to just 1.1 per cent.Announcing the reduced outlook for the UK, the Bank of England also revealed the nine-member Monetary Policy Committee had unanimously voted to keep the base interest rate at 0.75 per cent.

The Brexit effect on UK finance

The MPC's quarterly inflation report also suggested rates might not rise until the second half of 2020 on the back of Brexit concerns that had resulted in a "significant" weakening of consumer and had prompted businesses to free fresh investments."Since the Committee's previous meeting, key parts of the EU withdrawal process had remained unresolved and uncertainty had intensified," said the report."Businesses had appeared increasingly to be responding to Brexit-related uncertainties and there were signs that those uncertainties might also be affecting household spending and saving decisions."Mark Carney, the bank's governor, said the "fog of Brexit is causing short-term volatility in the economic data and, more fundamentally, it's causing a series of tensions".He added: "Consumer confidence took another step down in January. The gap between the relatively high confidence that households have in their personal finance situation and their more sceptical view of the general economic outlook is now extraordinarily wide."Given the dynamic of (Brexit) negotiations, we are now assuming uncertainty remains elevated for a while and that financial conditions stay tighter for longer.

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"Uncertainty about the outcome of negotiations has intensified since November and is now weighing more heavily on activity, predominantly through lower business investment and tighter financial conditions."Depending on how negotiations progress, particularly regarding clarity about the ultimate form of the new economic partnership, Brexit uncertainties could dissipate sooner or intensify further than the MPC has assumed in its central projection."

Forex: Brexit is the biggest risk faced by the UK economy

Fawad Razaqzada, market analyst at Forex.com, commented: "Domestically, Brexit is obviously the biggest risk facing the economy right now and we have seen the latest business surveys pointing to a slowdown in economic activity."Purchasing managers have reported falling activity in all three sectors of the economy — manufacturing, construction and services — in January."What’s more inflation has started to ease back over the past few months and the headline consumer price index has fallen near the Bank’s two per cent target, at 2.1 per cent, while core CPI has remained somewhat more stable around 1.9 per cent."Crucially, though, with inflation easing a little and nominal wages including bonuses rising at a faster clip of 3.4 per cent in the three months to November compared to a year earlier — the biggest increase since July 2008 — real wages have increased by a good 1.1 per cent."On top of this, employment has remained robust and the unemployment rate has remained near historic lows around four per cent."Relocate’s new Global Mobility Toolkit provides free information, practical advice and support for HR, global mobility managers and global teams operating overseas.Global Mobility Toolkit download factsheets resource centreAccess hundreds of global services and suppliers in our Online DirectoryClick to get to the Relocate Global Online DirectorySubscribe to Relocate Extra, our monthly newsletter, to get all of the international assignments and global mobility news.

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