UK economy seen growing at 1.5 pct this year, largely unchanged from 2017: Lloyds Bank

The United Kingdom is expected to expand at a rate of 1.5 percent this year, remaining largely unchanged from that in 2017, according to a recent report from Lloyds Bank. However, this projection is subject to a large number of uncertainties and hurdles in the way, with a wide range of geopolitical uncertainties elsewhere.

At home, broad-based agreement on exit terms has raised cautious optimism that a Brexit compromise can be reached. The UK government is hoping that a transition lasting around two years from March 29, 2019, can now be agreed over the next three months. It then anticipates a deal on the nature of UK’s longer-term relationship by October.

These deadlines continue to look very tight, particularly as the unanimous agreement is needed among other EU members. The prospects are also not helped by the precarious position of the UK’s minority government. Still, the potential for an agreement in principle, with the finer details fleshed out during a transition period, may be possible.

Further, the US mid-term elections in November will be the first key test of Donald Trump’s support. The Democrats seem likely to regain control of the House and possibly the Senate. If so, the President’s remaining two years in office are likely to be gridlocked.

Before then, Italy goes to the polls on March 4. Support appears principally split three ways between the euro-skeptic Five Star Movement, the centre-left Democrat party and a resurgent centre right, Forza Italia, led by ex-PM Silvio Berlusconi. With the winner unlikely to get a majority, and Five Star having so far ruled out joining a coalition, forming a new stable government is likely to prove difficult. If so, yet another election could be on the cards later in the year.

Meanwhile, the success of the Brexit negotiations will determine the pound’s performance this year. Recent signs of progress have helped propel the UK currency up to around 1.35 against the US dollar and kept it above 1.10 against the euro.

"With central banks likely to maintain a significant degree of policy stimulus and inflation pressures expected to remain contained, we doubt there will be a major economic catalyst for a correction. Geopolitics could pose the bigger risk," the report added.

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