Media comment – 2017 UK GDP



Commenting on the UK GDP data, Ana Boata, European economist, at Euler Hermes, the world’s leading trade credit insurer, said:


GDP growth was published at 1.7% in 2017 marking a second year of resilient economic growth. However, looking at the details there was a marked slowdown in domestic demand; its growth rate was almost two thirds lower than in 2016.The acceleration in external demand coupled with the lower sterling has given a strong boost to UK exports, notably in the manufacturing sector: real export growth was almost three times stronger than a year earlier and net exports were a positive contributor to GDP growth for the first time since 2011.Going forward, we expect 2018 to be another year of economic resilience as households are relatively confident about their future financial situation. The inflation rate should stabilise compared to last year, albeit at a high level (+2.6%), while wage growth is likely to accelerate given higher labour market shortages.
“Companies should continue to expand investment, notably in the manufacturing sector, on the back of still dynamic external demand (close to +4% real export growth expected in 2018) and also an increasing reshoring trend as the deadlines related to Brexit approach. As a consequence, the dependency of the UK supply chain on external inputs is expected to moderate which could give some relief to company margins. On the other hand, there seems to be an increasing number of EU companies starting to switch from UK to EU suppliers which could in turn pose a downside risk to UK companies’ top-lines in the medium-term.
Overall we expect GDP to grow by +1.5% in 2018. This economic resilience should pave the way for two interest rate hikes by the Bank of England (+50bp to 1%), most probably in May and November respectively. This should progressively translate into higher interest expenditures for companies and households as 85% of bank lending to companies and 40% of households’ mortgages are at floating rates.
“Hence monitoring company payment behaviour remains key given the high stock of debt (above 130% value added) and lower corporate margins.



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