Firms to face slowdown in economic growth as Brexit and global headwinds bite

Business in Yorkshire are facing a slowdown in UK economic growth, as prolonged uncertainty around Britain’s future relationship with the European Union (EU) and global headwinds take their toll.

Ian Beaumont of KPMG.

Economic data from from professional services firm KPMG shoawed that while employment opportunities remain solid, the rate of jobs growth is slowing.

KPMG’s Economic Outlook anticipates GDP growth to reach 1.4 per cent in 2019, falling to 1.3 per cent in 2020 - revised down 0.2 per cent since the firm published its last report in March.

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Brexit-related stockpiling in the first quarter propelled trade in goods with EU countries, as well as manufacturing output.

However, these levels are unlikely to persist during rest of the year, the report says. Services will continue to be the main pillar of growth, although KPMG says it does not foresee any exceptional strength there either.

Yael Selfin, chief economist at KPMG, said: “Recent weeks saw the gathering of clouds over the global horizon, with growing talk of a possible recession and a change in tune by major central banks as they gather their depleted arsenal to the rescue. The UK now has to consider the global backdrop a headwind.

“Back home, Brexit has not left the top of the domestic agenda, and the veil of uncertainty will continue to exact real damage on the UK economy.

“Our forecasts see weakening domestic momentum in the short term with a big downside if the UK leaves the EU with no deal.”

KPMG has also released its Report on Jobs: North, alongside Recruitment & Employment Confederation (REC), which shows that while employment opportunities remain solid, the rate of jobs growth is slowing.

The report showed a slower rise in permanent placements during June, while temp billings declined further, after a drop in May also.

Ian Beaumont, partner at KPMG in Leeds, said: “Dented confidence and a more cautious approach to hiring from firms on patch has slowed growth in permanent appointments and pushed temporary hires into reverse.

“Likewise, candidates will be increasingly reluctant to change roles until they can make more informed decisions on their futures and get a better view on the health of the economy.”

He added: “Over and above immediate political and economic uncertainty, two challenges that must be addressed to foster sustainable growth are low productivity and inequality of opportunity across the country.

“If not tackled, these will relegate the UK to the bottom of the league, with long-term mediocre growth and dwindling prospects.”

According to the Confederation of British Industry (CBI), economic growth has been volatile in the first half of 2019, due to pre-Brexit stockpiling and a surge in gold bullion pushing up imports growth. The business body expects the economy to grow at a modest pace. It is now predicting GDP growth of 1.4 per cent in 2019 and 1.5 per cent in 2020. This prediction is, however, based on an orderly Brexit deal being ratified by October 2019, and the commencement of a smooth transition period thereafter.

Rain Newton-Smith, chief economist at CBI, said: “Looking through the volatility in growth over the last six months, our view of modest economic momentum ahead is largely unchanged.

“However, there is a lot going on underneath the surface and the make-up of growth in our forecast is more skewed towards consumers.

“It’s certainly positive that household spending has more punch, thanks to an improvement in living standards. But set against this, Brexit uncertainty is crippling business investment, which we expect to fall at the fastest pace since the financial crisis this year.”

Slowest increase in output for firms since Brexit referendum

Regional firms posted the slowest increase in output since the aftermath of the Brexit referendum in July 2016, according to the latest NatWest PMI data. The rate of new business growth, though still solid, eased from May’s eight-month high.

The NatWest Yorkshire & Humber Business Activity Index – a seasonally adjusted index that measures month-on-month changes in the combined output of the region’s manufacturing and service sectors – fell to 51.2 in June from 53.4 in May. The latest reading was the lowest recorded in the current sequence of growth stretching back to August 2016. It compared favourably with the UK-wide figure of 49.7 which signalled the first decline in business activity since the aftermath of the Brexit vote.