UK - Q2 economic outlook
The UK has performed well in the years after the financial crisis, benefiting from strong domestic demand. In this video from April 2016, Henk Potts, Director of Global Research and Investments for Barclays, gives his views on what lies ahead for the UK economy.
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“The UK economy has been a standout performer in the years after the financial crisis, benefiting from stronger domestic demand, which has really been driven by the fact that we’ve seen improvements coming through in terms of the labour market.
“Pay growth has been growing at a faster rate than inflation, and disposable incomes have had a real boost from lower energy prices. There has been some evidence more recently that momentum is starting to slow down. We expect it to be a tougher year for the UK economy over the course of 2016 into 2017, as we feel the effects of fiscal consolidation, the uncertainties around the EU referendum, and, of course, the potential for higher interest rates in the fourth quarter of this year, all of which could hit personal consumption and hit business investment as well.
“There still is pressure on the Bank of England, despite the fact that we’re going to see lower levels of economic activity and the lack of inflation in the short term. We know it takes 12 to 18 months for policy decisions to hit the real economy.
“Productivity’s been improving; the output gap has been falling as well. So we still have pencilled in a rate hike: 25 basis points in the fourth quarter of this year. Then adding onto that, the slow normalization of policy after that may be 25 basis points every six months.”
Henk Potts, Director of Global Research and Investments, Barclays.
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