UK Economic Growth to "Far Exceed" that of European Union in 2020 if Conservatives Win Majority

EU growth vs UK growth pickup

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- UK economy has gone from leader to laggard in EU

- But, political certainty tipped to unlock growth

- Key risk to positive outlook is hung parliament

Research from a leading European investment bank has show UK economic growth is expected to pick up notably in 2020, should the Conservative Party win a majority at the December 12. election.

Berenberg Bank say a strong win for the Conservatives will simultaneously eradicate Brexit uncertainty, unlock extra government spending and see away the threat of the socialist agenda being prompted by the Labour Party of Jeremy Corbyn.

"Unlike in 2017, which ended in a hung parliament, Labour does not seem likely to close the gap with the Conservatives. If Johnson wins, expect medium-term UK economic growth to far exceed the European average for around 18 months," says Kallum Pickering, Senior Economist with Berenberg in London.

Research from Berenberg shows that ahead of the EU referendum in 2016 the UK economy was humming along at a speed that meant the country's economy was one of the EU's economic leaders.

Indeed, the UK outperformed the EU27 from 2012 until the Brexit vote.

"Then, after tracking the European average in H2 2016 and H1 2017, the slide in UK sentiment gathered momentum," says Pickering. "While global factors such as trade wars and the China slowdown have dampened sentiment across Europe since 2018, domestic political risks have pushed UK sentiment even further below the already falling European average."

According to Berenberg's research, the contrast between the UK and EU in GDP terms is stark: from the first quarter of 2010 to the second quarter of 2016, UK real GDP growth averaged 2.0% year-on-year versus 1.2% for the EU27.

But UK growth has fallen to 1.6% since the referendum.

EU vs UK growth

UK was sat at 2.0% during the 2017 "global boom", and subsequently slowed to just 1.0% year-on-year in the third quarter of 2019.

Growth in the European Union - excluding the UK - has meanwhile averaged 2.2% since the third quarter of 2016. It peaked at 3.1% in the third quarter of 2017, before dropping to 1.5% in the third quarter of 2019.

The data is clear: The UK has gone from leader to laggard in the economic growth stakes.

But, if political uncertainty is the source of the UK's economic underperformance relative to the EU, it goes that restoring political uncertainty could lead to an improvement in the country's economic standing.

Pickering says the UK economy is "heading for a medium-term pick-up". With the Conservatives ahead in the polls, the Conservatives of Boris Johnson look set to win a majority of seats in the House of Commons.

"Unlike in 2017, which ended in a hung parliament, Labour does not seem likely to close the gap with the Conservatives. If Johnson wins, expect medium-term UK economic growth to far exceed the European average for around 18 months," says Pickering.

Why would the UK expect to see its economy grow on a Conservative majority?

Berenberg cite three important factors:

1) it would put the UK on the path to an orderly Brexit on 31 January 2020;

2) with a majority of seats, the Conservatives would be likely to back a large fiscal stimulus in spring 2020; and

3) it would do away with the risk that Labour leader Jeremy Corbyn could ever become prime minister and damage the UK with far-left economic policies.

Based on the above, Berenberg are forecasting real GDP growth to accelerate from 1.3% in 2019 to 1.8% in 2020 and 2.1% in 2021.

The obvious risk to the above would be the Conservatives failing to win a majority, as this would lead to further political uncertainty as the parties vie to build a minority coalition.

With the Conservatives left with no obvious coalition partner, a minority Labour-led government could well take the reins.

"Continued political uncertainty as the two major parties scramble for a coalition partner or else face repeat elections could further damage confidence and keep growth at its current subdued annualised pace of under 1%," says Pickering.

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