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Modest growth forecast if ‘friction-light’ Brexit deal achieved

18 September 2018

Investment in infrastructure and technology is key to bridging the productivity gap in the Midlands - and more support is needed to bolster the UK’s economic competitiveness post-Brexit.

That’s according to Karl Edge, Midlands regional chairman at KPMG.

The call comes as KPMG UK publishes its quarterly Economic Outlook Report, which reveals that the UK economy is set for modest growth if a positive Brexit deal can be reached with the EU.

KPMG predicts that UK GDP will grow by 1.3 per cent in 2018 and 1.4 per cent in 2019.

This will mark the lowest rate of growth since 2008 and 2009.

These figures are based on an assumption that the UK government will achieve a relatively friction-free Brexit and transition deal.

If a disorderly Brexit were to occur, KPMG predicts a rapid slowing of growth to 0.6 per cent in 2019 and 0.4 per cent in 2020.

The report also finds that Brexit uncertainty is not the only factor inhibiting growth. Poor productivity continues to be a drag, with businesses finding it difficult to recruit because of dwindling spare capacity.

The manufacturing sector is still seeing low export levels despite the weakness of the pound, and retailers in particular continue to face a challenging environment.

In addition, despite high employment levels, the reports predicts workers can expect pay growth of around 3 per cent.

KPMG’s own research conducted last year ranked the UK’s 12 regions by productivity and placed the West Midlands 9th in the country.

Karl Edge (pictured) said: “The challenges raised by our UK Economic Outlook Report are particularly relevant in the Midlands where productivity remains one of the core issues preventing the region from reaching its growth potential.

“We believe that investment in new technology, alongside building a skills base to embrace digitisation, will be fundamental to solving that puzzle and will help make sure that the economy is competitive post-Brexit and long into the future. 

“The regional strategy for the Midlands will need to mirror the major themes of the UK Industrial Strategy around innovation, people, infrastructure, business environment and communities.

“For the region to push on for life outside of the European Union, we need to see a concerted effort across all levels of the economy to deliver against those ambitions.

“As a priority, there must be stronger national government support for infrastructure investment that can bring more people together, faster, while local government has to capitalise on its devolved powers to create an environment that will foster business growth.

“As for businesses, they have their own responsibility to embrace new technologies to drive regional productivity and maintain the nation’s competitive edge in international markets.”

KPMG UK also predicts that house price growth will slow from 4.5 per cent in 2017 to 2.6 per cent in 2018, 2.0 per cent in 2019, and 1.6 per cent in 2020.

High price levels, uncertainty around the future economic outlook, and rising interest rates are expected to take their toll in London and the South East especially. House prices in the capital are expected to drop by 0.7 per cent in 2019.

The West Midlands region is expected to achieve the second fastest growth rate in house prices in 2018 at 4.2 per cent, albeit down from 6.0 per cent in 2017 and predicted to stall further to 2.1 per cent in 2019 and 1.2 per cent in 2020.

Across the UK, the housing market strongest growth is expected in regions with lower pressures on valuations, such as Scotland, where KPMG expects to see growth of 4.9 per cent in 2018.

In comparison, the housing market in London will continue to struggle, with gradual falls in house prices until 2021.

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