Jim Brunsden and Mehreen Khan in Brussels
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The UK is ready to have the bottom progress of just about any EU nation when it leaves the bloc in 2019, in response to new forecasts from the European Commission that present Britain being outstripped by an accelerating eurozone.
Brussels’ newest set of financial forecasts predict that UK progress will fall to 1.1 per cent in 2019, solely marginally forward of Italy and much behind the 1.9 per cent progress predicted for the euro space. The fee has additionally lowered its forecast for progress in Britain in 2017 in contrast with its final set of figures in May.
The fee mentioned the downbeat evaluation mirrored the affect of upper inflation on the financial system and that progress was “expected to remain subdued over the forecast horizon”.
Brussels’ projections for the UK are extra pessimistic than these of the International Monetary Fund and the Bank of England, which have additionally each lower their forecasts for gross home product in latest months. Both the fund and the financial institution count on UK growth to return in at 1.7 per cent this 12 months, in contrast with the EU’s forecast of 1.5 per cent.
EU officers determined to incorporate a UK forecast for 2019 regardless of the excessive diploma of uncertainty over what Britain’s buying and selling relationship can be with the remainder of the EU after it leaves the bloc in March that 12 months.
The fee mentioned the projections have been “based on a purely technical badumption of status quo in terms of trading relations” and that this “has no bearing” on the Brexit talks.
Even underneath this badumption of no coverage change, UK progress is anticipated to be low whereas enterprise funding will “remain subdued following a period of heightened uncertainty”. Net export progress can be anticipated to “moderate marginally”.
The image for Britain contrasts starkly with an upbeat evaluation of the eurozone, which is anticipated to notch up its greatest progress figures in a decade. GDP progress estimates for 2017 have been elevated to 2.2 per cent this 12 months, from a May estimate of 1.7 per cent — the most effective figures since 2007.
In 2018, euro space progress is anticipated to average barely to 2.1 per cent, in opposition to a earlier estimate of 1.eight per cent.
A possible “Brexit-related trade shock,” is cited as one of many exterior dangers to the eurozone by the fee, together with geopolitical tensions within the Korean peninsula and a potential slowdown in China.
Brussels additionally thinks the eurozone’s growth has additional to run regardless of unemployment already falling to its lowest since 2009. It notes there’s nonetheless a excessive diploma of slack in Europe’s labour markets, which means that unemployment charges might go down additional with out producing inflation.
The fee thinks the eurozone jobless fee, at the moment at eight.9 per cent, will fall to 7.9 per cent in 2019.
Inflation in the meantime can be at 1.6 per cent in 2019 — nonetheless beneath the European Central Bank’s goal of just below 2 per cent.
Of the eurozone’s main economies, Germany can be powering the bloc with progress accelerating by 2.2 per cent in 2017, a giant hike from the 1.6 per cent predicted in May.
Spain, the eurozone’s fourth-largest financial system, will see progress dip from three.1 per cent this 12 months to 2.5 per cent in 2018 and a pair of.1 per cent in 2019. The fee mentioned it was too early to estimate what affect the Catalonia disaster would have on the financial system. The area accounts for a fifth of Spanish GDP.
Italy’s forecast progress of simply 1 per cent in 2019 would be the lowest within the EU, the fee estimates.