We believe that the market consensus has misread the outlook for the UK, where economic fundamentals are improving, not deteriorating. Looking forward, we see UK economic health improving, with more people in work, more wage growth, less inflation, more investment spending, better public finances and a continued recovery in manufacturing and exports.
We believe the UK economy is capable of continuing to grow by annual rate of 2% or more, irrespective of the outcome of the Brexit negotiations. This is a considerably better outcome than the recession that some of the more pessimistic commentators are forecasting and what is clearly priced in to equity market valuations. It will also compare very favourably with most other major economies, many of which are rapidly losing momentum amid increased political risks and tighter monetary policy.
Overall, the data we’ve seen over the course of the last year points to a strong labour market, real wage growth and a strong banking system. In April 2018, real wage growth re-emerged as the post-referendum inflation, which was caused primarily by the decline in sterling, started to moderate – we expect this to continue going forward. Meanwhile, according to ONS data, the unemployment rate is the lowest since 1975, and, with more than 800,000 job vacancies waiting to be filled, we think the UK economy will benefit from further employment growth.
Additionally, the UK has a healthy banking system that is very well placed to continue to provide growth-enabling credit to businesses and consumers. This, coupled with all the other positive trends in the domestic economy that we are seeing and the disappointing data elsewhere, leads us to believe that the UK will be one of the fastest growing OECD economies in 2019.