UK: Economy to slowly return to growth rates closer to 2% - Wells Fargo

Analysts from Wells Fargo, look for the British economy to return to growth rates closer to 2 percent by the end of 201 and expects the pound to continue to trend slowly higher against the greenback.

Key Quotes: 

“Real GDP in the United Kingdom rose 1.5 percent in Q4 year over year, led by a solid increase in overall production, yet likely only modest growth in consumer spending. In the wake of the Brexit referendum in 2016, sterling depreciation and subsequent increases in inflation led to a pullback in real PCE and investment spending over the past year. However, the slowdown is likely starting to reverse as inflation begins to recede, wage growth slowly begins to pick up and investment intentions strengthen. A relatively stable trade-weighted value of sterling should also support a softening in inflation.”

“In the midst of an improving outlook, Brexit negotiations still present uncertainties for the British economy, as the U.K. and European Union must determine the future of economic and financial relationships currently in place. The BoE will also likely maintain a cautious approach to tightening policy as Brexit negotiations continue, inflation slows and growth gradually picks up.”

“Our currency strategy team looks for the value of sterling to gradually appreciate against the dollar in the coming quarters in the midst of general greenback weakness. We look for the British economy to return to growth rates closer to 2 percent by the end of 2019, assuming Brexit negotiations do not reverse the gradual improvement in consumer and investment spending in the meantime.”