A tale of two economies: Data to show slower UK GDP growth as European Central Bank acknowledges Eurozone boom
Economists expect new government data this week to show UK growth slowed down last year, as the European Central Bank (ECB) adjusts to a Eurozone pulling further away in a tale of two economies.
Forecasts collected by the Treasury show independent economists expect GDP growth to hit 1.7 per cent for 2017 overall in figures to be released on Friday, a slight dip compared to the 1.8 per cent expansion seen in 2016.
“The key drivers of the slowdown are set to be consumer spending and business investment,” said Christian Jaccarini, an economist at the Centre for Economics and Business Research. “Consumers have faced a real income squeeze, which we expect will persist for much of 2018.”
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The latest data on the UK labour market will be published on Wednesday, with expectations the unemployment rate will stay near four-decade lows, although annual wage growth is predicted, at 2.5 per cent, to remain well below inflation.
Ian Williams, chief economist at Peel Hunt, said the UK’s real wage outlook is “improving”, with possible positive implications for consumer spending. He said: “On the labour market it looks like employment may have peaked but average earnings growth is trending higher and there is some survey evidence pointing to job-changers commanding higher starting salaries.”
On the other side of the Channel policymakers are grappling with a very different environment. Investors will listen closely to the ECB’s president, Mario Draghi, at the central bank’s latest monetary policy meeting on Thursday.
Markets were surprised earlier this month by a markedly optimistic outlook on the European economy and the promise of a change in communication about its outlook in its last meeting minutes, an acknowledgement that an extraordinary period of monetary stimulus may be approaching its end.
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“They’re putting out feelers to prepare markets for an exit,” said David Owen, chief European economist at Jefferies investment bank, although he added Draghi will tread carefully, keen to avoid a sell-off in peripheral Eurozone economies’ government bonds.
The ECB is currently planning to continue buying bonds under its quantitative easing stimulus programme until September, at a pace of around €30bn (£26bn) each month. While few economists believe this will be adjusted at this week’s meeting, Draghi’s words at the press conference at 12:45pm UK time on Thursday will be closely scrutinised for clues on the future path of asset purchases.
Dovish risks remain this week, according to Florian Hense, an economist at German bank Berenberg.
“They will try to put a lid on the euro gains,” he said, with fears over the damage a strong euro could do to growth in periphery nations.
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