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Strong pound to slow inflation and help hard-pressed families, says UBS

Britain’s economy will grow more quickly than expected this year as the pound has picked up strength, helping to bring down inflation and support family finances, economists at UBS believe.
Sterling is back up at pre-referendum levels against the dollar, though not against the euro, and is at its highest level since the Brexit vote on a trade-weighted basis.
The fall in the pound was the main factor which pushed inflation up to above 3pc, so this rise in the currency means the process “has therefore gone into reverse”, said UBS’s John Wraith.
“The correlation between the currency and CPI (with a nine month lag to allow the currency moves to feed through to consumer prices) suggests the rate of inflation may fall faster than we thought before the recent pop higher in the currency.”
Strong pound to slow inflation and help hard-pressed families, says UBS

As a result inflation should fall rapidly towards 2pc, easing the pressure on consumer finances.
The economy is now forecast to grow by 1.4pc this year and 1.2pc in 2019 - up from an earlier prediction of 1.1pc in each year.
That represents a slowdown from 1.8pc in 2017, but will be supported by exports as “the impressive acceleration in Eurozone economic activity gave the UK a significant offset to domestic demand weakness through 2017,” Mr Wraith said.
Much future growth depends on the agreement of a transition deal with the EU and then on the final Brexit deal.
“At present, we anticipate a reacceleration from the first quarter of 2019 based on the hope that sufficient clarity over the UK's future arrangements with the EU has been reached to trigger a release of some of the pent-up investment demand delayed by the current uncertainty, and a modest pick-up in consumer and business confidence,” said the UBS strategist.
Strong pound to slow inflation and help hard-pressed families, says UBS

Donald Trump speaking in Davos in January. UBS has upgraded its forecasts for the US economy, as well as much of the rest of the world.

Credit:
Evan Vucci/AP
UBS also upgraded its forecasts for 14 other economies, including the eurozone, the US, China, Australia, Brazil and emerging markets in Asia.
“These countries represent 54pc of global GDP, so our 2018 global growth forecast shifts up from 3.9pc to 4.1pc and 2019 from 3.9pc to 4pc,” said economist Arend Kapteyn.
Consumers are spending more than expected in the US and eurozone, he said, boosting domestic demand in those countries and also international trade.
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