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The economy is projected to slow in 2017 and 2018, owing to uncertainty about the outcome of the Brexit negotiations. This projection assumes that the United Kingdom's external trade will operate on a most favoured nation basis from April 2019. The uncertainty, and the assumed outcome, is projected to undermine spending, in particular investment. Policies have supported private confidence and consumption, but household spending is projected to ease as the combination of a weakening labour market and higher inflation reduces real wage growth. The current account deficit has narrowed and exports should support growth, stimulated by improved competitiveness.
Inflation has exceeded the target of 2% reflecting the recent exchange rate depreciation. The Bank of England is projected to look through this transitory effect and maintain its supportive policy stance. The budget deficit is projected to remain broadly unchanged this year, but fiscal consolidation is planned for 2018 despite a weaker growth outlook. Instead, further fiscal initiatives to increase public investment should be considered to support demand in the near term and boost supply in the longer term.
The United Kingdom faces a long-standing decline in its export market share. Its less affluent regions, which mainly export manufacturing and agricultural products, are exposed to the risk of global protectionism, which could lower incomes and raise inequality. Enhancing regional and urban transport links would increase firms’ access to the best technologies and lower export costs, improving their ability to tap new markets and suppliers. Relaxing regulations to lift housing supply, promoting educational attainment and fostering lifelong learning would boost regional labour mobility and improve job prospects for displaced workers.
Economic Survey of United Kingdom (survey page)
The Economic Consequences of Brexit: A Taxing Decision (main web page with paper)