Businesses expect UK economy to slow further in 2020

Oscar Williams-Grut
Senior City Correspondent, Yahoo Finance UK
Lidl's new Scottish distribution centre in Motherwell, Scotland, Britain. Photo: Russell Cheyne/Reuters

Businesses expect UK economic growth to slow further next year as the US-China trade war and Brexit uncertainty continue to weigh on industry.

The Confederation of British Industry (CBI), which represents 190,000 businesses, said on Monday it expects UK GDP to grow by just 1.2% in 2020, down from the expected 1.3% growth rate this year.

The CBI blamed Brexit for the weak economic picture, along with the US-China trade war which is hurting global growth rates.

“Should these dual headwinds subside, we expect a gradual pick-up in activity,” said Rain Newton-Smith, CBI’s chief economist.

“But the bigger picture is one of fairly modest growth over the next couple of years – growth that should be far better, given the UK’s relative strengths.”

The CBI’s weak forecast is in fact based on a best case scenario for Brexit that sees the UK leave the EU on 31 January and make smooth progress negotiating an “ambitious” trade deal with the EU that allows frictionless trade. If reality falls short of these expectations, the CBI expects GDP to grow by just 1% in 2020.

“Transforming a lost decade of productivity will only be possible if supported by a good Brexit deal – one that keeps the UK aligned with EU rules where essential for frictionless trade along with protecting the UK’s world-beating services sector, which accounts for 80% of our economy,” Newton-Smith said.

The CBI said consumer spending would continue to account for the lion’s share of growth, but government spending would also provide a growing boost thanks to major spending pledges from both main parties. Business investment is forecast to essentially flatline.

Separately, Make UK, the manufacturers lobbying group, on Monday downgraded growth forecasts for growth in its sector. Make UK and accountants BDO forecast manufacturing growth of just 0.3% in 2020, down from an earlier forecast of 0.6%. However, this would represent a pick-up on the 0.1% growth expected in 2019.