- We think growth will recover in 2020 largely because we are going to see some benefit from an improvement in the global backdrop.
- We are also expecting some of the Brexit uncertainty of 2019 to disappear.
- The BoE is predicting inflation to fall as low as 1%, but we believe it will head back up to its target rate of 2% by the end of the year.
With a conservative majority lifting some of the weight off Brexit uncertainty, combined with a halt to the global economic slowdown, we are expecting economic growth to return to the UK by the end of the year. However, we must first move through a slump whereby the BoE is predicting inflation to fall as low as 1%.
The BoE is an inflation- targeting central bank and tries to achieve a inflation target rate of 2% at all times, so the fact that we have weak economic growth and inflation falling well below its target in the near term, means the bank may well need to cut interest rates to see us through this period of trouble.
"Economic growth is running at its lowest rate for quite some years. We think that growth will recover in 2020, largely because we are going to see some benefit from an improvement in global backdrop, but also because we are going to see some Brexit uncertainty disappear."
If we are right and inflation does recover back to target and economic growth does return to the UK, then the BoE might find itself thinking about raising interest rates by the end of 2020 or the start of 2021. However this will not be a swift increase, but to use their own words 'in a gradual, unlimited fashion'.
For a more in-depth analysis of our 2020 forecast, read our full outlook here.
Chief UK & Euro Area Economist