February 7, 2018 / 12:07 AM / 6 months ago

UK growth outlook improves on back of world recovery - NIESR

LONDON, Feb 7 (Reuters) - Britain’s Brexit-bound economy will grow faster than previously thought over the next two years, thanks mostly to strength in the global economy, the National Institute of Economic and Social Research, said.

A woman takes a photograph of the Canary Wharf financial district from Greenwich Park in London, Britain, January 22, 2017. REUTERS/Hannah McKay

British gross domestic product will grow by 1.9 percent in 2018 and in 2019, the think tank said on Wednesday, up from its November forecasts of 1.7 percent for both years.

By comparison, the world economy is now set to expand by 3.9 and 3.8 percent in 2018 and 2019 respectively, up from NIESR’s November forecasts of 3.6 and 3.5 percent.

Despite lagging the global upturn, Britain’s economy has not slowed as sharply as many forecasters expected at the time of the decision by voters to leave the European Union

As well as the unexpectedly strong global recovery, NIESR said Britain was being helped by the fall in the value of sterling which was boosting British exports, and by December’s deal between London and Brussels about the terms of Britain’s divorce from the EU which cleared up some uncertainty.

But it remains unclear what Brexit will mean for the world’s sixth-biggest economy. Negotiations over Britain’s future ties to the EU have yet to begin in earnest.

NIESR’s forecasts were based on an assumption that London secures a deal that causes almost no disruption to British trade with the bloc. This would require politically sensitive concessions on immigration and long-term payments to the EU by Prime Minister Theresa May, it said.

If Britain instead resorts to World Trade Organisation rules to govern its trade with the EU, the economy would suffer a mild recession and would be 7 percent smaller in around 10 years’ time than it would be if a favourable deal is done, NIESR said.

That would leave people in Britain an average of 2,000 pounds a year worse off.

NIESR kept its forecast for the Bank of England to raise rates by 25 basis points every six months, quicker than most investors expect, until they hit 2 percent.

The BoE said in November it expected Britain’s economy would grow by 1.6 and 1.7 percent in 2018 and 2019 respectively. It is due to publish fresh forecasts on Thursday.

Reporting by William Schomberg, editing by David Milliken

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