Barclays have revised higher their projections for the UK economy in 2017 owing to resilience seen in the post-referendum period.
Most analysts slashed growth forecasts for the UK following the vote to leave the EU in June but many have since been left scratching their heads over the UK’s defiant growth levels.
Recent data on employment and retail spending are also indicative of strong momentum heading into 2017.
Consensus forecasts currently see 1.3% growth for next year, slightly lower than the Bank of England’s 1.4%.
“In our latest assessment of the post-Brexit outlook, we revise up our growth forecasts for 2017 from 0.7% to 1.0%. The main reason for this change is ongoing resilience in sentiment and data, as well as new risks that the withdrawal process could be delayed even further,” says Fabrice Montagne at Barclays in London.
Montagne says uncertainty about the timing of Brexit has likely prevented companies from acting upon the risks that an exit from the EU entails.
According to results of a survey conducted of Barclays’ corporate clients, Brexit is not universally perceived as a major disruptive event.
However, conflicting surveys have highlighted that there can be substantial differences in views on the impact of Brexit for businesses.
“We believe that the difficulty in properly assessing the ramifications of Brexit, as well as the length of the process, means that downside risks will only materialise gradually and lead to growth being lower for longer, rather than seeing GDP crash and rebound,” says Montagne.
Accordingly, Barclays now expect rates to remain on hold and QE purchases to not be extended and holdings to be maintained at their target level of £445bn.
Barclays believe that the threshold for the Bank to cut is very close to their previous forecast of 0.7% growth for next year, which makes a cut in February unlikely.
Brexit has yet to Happen
With data being fairly resilient and given an apparent general perception that Brexit is “not that bad”, Barclays argue consensus forecasts may have become complacent on some of the negative consequences that are yet to materialise.
Two reasons are cited for this complacency:
Firstly, the negative impact of uncertainty comes with a one or two quarters lag, hence is unlikely to be seen before Q4 16 or Q1 17.
Secondly, notification of withdrawal will trigger the two-year countdown to finding an agreement.
“Michel Barnier, EU Brexit chief negotiator, reminded his British counterpart in his first press conference that the EU’s national interests are not always aligned with UK’s and that it is ready to play hardball,” says Montagne.
Accordingly, and in a similar fashion as during the Conservative Party conference, Montagne believes the actual triggering of Article 50 could generate some negative sentiment and financial market reaction.