As analysts predict softer growth in both 2017 and 2018, are we still being too pessimistic about Brexit?

New Year fireworks
Economists predict lower growth in 2017 and 2018 (Source: Getty)

Gerard Lyons, co-chair at Economists for Brexit, says Yes.

The UK’s big challenge is that we talk ourselves into an unnecessary downturn. Across the globe, people read constant negative comments from UK economists and politicians. The fact they were wrong before the EU referendum doesn’t seem to bother them.

Despite this, many global firms are seeing through this, and with sterling cheap, are choosing to invest here. They are right to do so. Brexit is a great opportunity to reposition the UK, driven by a free trade agenda and a bespoke UK-EU deal.

It does not mean that if the economy slows next year then Brexit is bad for us. Far from it. After seven years of growth, the UK often slows at this stage of the economic cycle. Also a temporary rise in inflation in 2017 may squeeze spending power. So growth may slow, but not by much. After all, President-elect Donald Trump’s fiscal boost and central banks’ polices should help reflate the world economy.

UK growth may resemble a Nike swoosh, as the further ahead one projects, the better our economy’s prospects appear.

Nina Skero, managing economist at the Centre for Economics and Business Research, says No.

While recent economic data has painted a stable picture of the economy, a turning point may not be far off.

October inflation data showed input prices increasing at the fastest rate on record. As businesses pass higher costs onto consumers, we expect inflation to stand around 2.4 per cent in 2017-18 – more than three times its 2016 level. Combined with modest earnings growth, this will squeeze household spending power.

On the business side, the medium-term outlook isn’t much brighter. Business investment grew in the third quarter. But given continued uncertainty, firms will be increasingly cautious with future spending.

Although there are reasons for cautious optimism, such as the weak pound which may discourage importing (though it won’t necessarily boost the UK’s largely price-inelastic exports), the short-term risks are certainly on the downside, with most potential post-Brexit benefits such as reduced regulation years away.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

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