Channel Island businesses are to benefit from falling inflation and increased consumer spending power, according to a visiting UK economic advisor, but there’s also a warning that political uncertainty will mean firms should think nimbly.
At presentations hosted by professional services firm EY, Channel Islands businesses heard the results of EY ITEM Club’s Winter Forecast. Martin Beck, EY ITEM Club’s Senior Economic Advisor, informed the audiences that the UK economy is over the worst but is struggling to accelerate compared to its global counterparts and is unlikely to see significant growth in 2018.
In presentations over two consecutive days in Guernsey and Jersey respectively, representatives from the local financial services industry learnt that the UK’s GDP growth in 2017 was 1.8%, which was better than widely expected. However, this compared unfavourably with 2017 GDP growth of 2.5% for the Eurozone, 2.3% for the US and an estimated 3.0% globally. Although data was not available for Guernsey and Jersey for 2017, it was reflected upon that growth had lagged behind the UK’s for a number of years.
The momentum from a reasonable performance in 2017, an improving outlook for consumer spending and the increased likelihood of a near-term Brexit transition arrangement were explained as all offering support to UK growth this year.
The EY ITEM Club has nudged up its UK GDP forecasts for 2018 to 1.7%, compared to the 1.4% it was predicting in its Autumn Forecast in October last year. However, further out, the UK’s limited productivity performance and ongoing Brexit and political uncertainties will see the UK achieve only ‘mid-range growth’.
Martin said: “The tight linkages between the economies of the Channel Islands and the UK mean that the islands should benefit from some of the upsides we expect for the UK this year, particularly falling inflation and the gains that will deliver to consumers’ spending power. Moreover, for economy’s as open to and dependent on business with the rest of the world as those of the Channel Islands, our expectation of a broad-based strong performance from the global economy is good news.”
“However, the Channel Islands’ economic outlook will continue to be buffeted by political developments in the UK, particularly around Brexit and the not-insignificant possibility of another general election and a change of government. The ability to react nimbly to the challenges and opportunities presented by these developments will remain key.”
Wendy Martin, EY Tax Partner and host of the Jersey presentation said: “The UK economy’s stability will no doubt provide Channel Island businesses with some peace of mind for the short term. That said, the lack of growth expected for the next few years and wavering UK political stability means businesses should be seizing the opportunities provided by the strong global growth and developing post-Brexit business strategy, which identifies where future value will be created.”
The ITEM Club is the only non-governmental economic forecasting group to use the HM Treasury’s model of the UK economy. Its forecasts are independent of any political, economic or business bias and this independence is underpinned by the untied sponsorship of Ernst & Young LLP. ITEM stands for Independent Treasury Economic Model. HM Treasury uses the UK Treasury model for its UK policy analysis and Industry Act forecasts for the Budget.