UK economic performance set to slow as prospect of hard Brexit causes confidence jitters, warns OECD

Rebecca Smith
The OECD revised up its forecasts for many countries in 2018 but held the UK outlook constant
The OECD revised up its forecasts for many countries in 2018 but held the UK outlook constant (Source: Getty)

The UK economy is set to slow this year and next, clouded by uncertainty over the outcome of the UK's negotiations over Brexit.

According to the Organisation for Economic Cooperation and Development (OECD), the uncertainty and the assumed outcome from Britain leaving the European Union, is projected "to undermine spending, in particular investment".

It said UK growth forecasts of 1.6 per cent in 2017 and one per cent in 2018 remained unchanged from its March prediction. While the OECD pushed up many forecasts for other countries next year, it kept the UK prediction constant.

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The organisation expects a so-called hard Brexit to mean the UK will be trading on more restrictive World Trade Organisation terms when it leaves the EU in 2019, if it fails to secure a comprehensive free trade agreement.

"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," it said.

In its latest global economic outlook, the international organisation said weaker growth could push the unemployment rate above five per cent.

However, the OECD noted that "swift progress in negotiations and an outcome that retains strong trade linkages with the European Union would lead to better outcomes than projected".

The OECD forecasts the global economy is set to grow 3.5 per cent this year though, which will be its best performance since 2011, with growth set to edge up to 3.6 per cent in 2018.

That's a slight readjustment from the think tank's March prediction of 3.3 per cent, but the OECD still struck a note of caution on overstating the improvement, saying a move from "very bad to mediocre" was not cause for celebration.

German growth though, helped boost the Eurozone economy, with forecasts at 1.8 per cent for both this year and next, up from 1.6 per cent for 2017 and 2018.

Meanwhile, the OECD has forecast US growth of 2.1 per cent this year and 2.4 per cent in 2018, a downgrade from its March prediction when it forecast a 2.4 per cent rise in US growth this year, and 2.8 per cent for 2018.

The OECD pointed to delays in the Trump administration proceeding with planned tax cuts and infrastructure spending.

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