Why has the UK economy defied predictions of doom?

6th January 2017

Why has the UK economy defied predictions of doom?

This week’s reports from purchasing managers point to growth of 0.5% in the final three months of 2016 compared with 0.6% in the third quarter. Post-referendum forecasts for 2016 were quickly shredded by the Bank of England when it became clear that activity had not collapsed. Likewise, predictions for 2017 may also soon be revised upwards.

There are a number of reasons for this. Firstly, the economy had momentum in late 2016 which will persist into the first few months of 2017. Secondly, the international outlook is looking brighter than it was a few months ago. Donald Trump’s tax-cutting agenda means the US economy is going to grow rapidly this year and that’s good news for UK exporters.

Finally, the stance of both fiscal and monetary policy in the UK has become more growth friendly since the referendum. Philip Hammond throttled back on the government’s austerity plans in last November’s autumn statement, reinforcing the impact of Bank of England’s decision three months earlier to cut interest rates and embark on a new round of quantitative easing.

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