Moody’s Investors Service has downgraded its forecasts for UK growth on the back of Brexit uncertainty. Where previously, the ratings agency had expected UK GDP to grow by 1.8% this year and 2.1% in 2017, it now believes growth will average 1.5% and 1.2% in 2016 and 2017 respectively.
While acknowledging that both short and long-term forecasts are subject to unusually large levels of uncertainty at present, it said: “We now expect investment spending to weaken considerably over the rest of this year and next… Our baseline assumes that some fiscal loosening and monetary policy accommodation will support the economy, limiting the deceleration of growth.”
Moody’s expects the Bank of England to look past any short-term rise in inflation above target as a result of pass-through from the sharp decline in sterling and keep monetary policy close to zero. However, it added that it is easy to conceive of a scenario where annual GDP growth averages as little as 0% – 0.5% in 2017 because of a larger-than-currently-expected hit to consumption, especially it said if “hiring slowed down and some households reevaluated the decisions to buy big-ticket items such as entertainment, travel, car and home purchases and remodelling”. “
In addition, substantial downside risks to aggregate demand could materialise if economic weakness led to a material correction in asset prices or a house price downturn,” it said… READ ENTIRE ARTICLE >>
