The latest evidence points to GDP growth picking up from 0.4% in Q2 to 0.5% in Q3. That would make it the strongest quarter since the end of 2016. Even so, the economy would still be on track for a poor performance this year overall. Our forecast is for annual growth of 1.3%, the lowest since the financial crisis.
Meanwhile, the Prime Minister promised to end austerity if the UK strikes a “good” deal with the EU. But even on current plans the Government is unlikely to meet its target of eliminating the budget deficit entirely by the mid-2020s. As a result, the Government would have to abandon this target in order to avoid tightening fiscal policy further. In any case, it is still unclear whether the UK and the EU will be able to broker any Brexit deal at all. While there is reportedly some optimism that a deal can be clinched at the EU Council meeting on the 17th /18th October, it seems unlikely that the Northern Ireland issue can be resolved by then.
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