Rate hike delay
The softer growth figures and political uncertainty also mean that the prospect of a rate hike this year or the following year are likely off the table, Page continued.
“The UK is going to go through a lot of uncertainty because of Brexit and that means business investment will be undermined. Households are already showing significant signs of weakness. It would be a brave bank to think they could start a monetary policy tightening cycle in that type of environment,” he says.
Though the downgraded UK forecast from the IMF clearly points to “lower and slower” growth for the economy, Seven Investment Management’s Justin Urquhart Stewart argued the news should be taken with a pinch of salt, not least of all because the fund’s figures have a reputation for being “notoriously wrong”.
“You have to be really careful with these one off-figures before you have the chance to join the dots and see where the trend is going,” he advised.
Play the sick man
And based off first quarter data and the fact that IMF’s global growth numbers remain positive and have been revised upward, “the indicator should show lower and slower growth, not negative growth,” says Urquhart Stewart.
But investors should still be “careful of their UK exposure” because while “immediate stoppage is not the case,” the IMF’s downgraded forecast serves as a “big flag saying beware of Brexit.”
In the short term, at least, it seems the UK is destined to play the part of the new “sick man of Europe,” concedes Chris White, head of UK Equities at Premier Asset Management.
“It seems likely to me that, given the lack of consensus and clarity surrounding Brexit, the UK’s economic growth will wane … at least on a relative basis compared to other European countries,” he says.
“It’s difficult to foresee substantial domestic or foreign investment in the UK given the uncertainty and existing overseas investors may reconsider their positions.
“The economy will get little help from consumers (unless consumer debt rises further) and the government is cautious about increasing expenditure despite the electorate’s concerns about austerity.”
But even White, who is resisting a full doom and gloom reading of the situation, adds “we should expect a more fallow period of economic growth over the next couple of years”.
