Yorkshire businesses to brace for downgraded GDP growth forecast

Economic data from KPMG warns that those running Yorkshire businesses face a slowdown in UK economic growth, as prolonged Brexit uncertainty and global headwinds take their toll.

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

KPMG’s Economic Outlook anticipates GDP growth to reach 1.4% in 2019, falling to 1.3% in 2020 – a revision of 0.2% since the firm published its last report in March.

Brexit-related stockpiling in Q1 propelled trade in goods with EU countries, as well as manufacturing output. But these levels are unlikely to persist during rest of the year. Services will continue to be the main pillar of growth, although KPMG does not foresee any exceptional strength there either.

Yael Selfin, Chief Economist at KPMG UK, commented:

“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.”

Solid but softer labour market

The key signal from the KPMG REC employment date is of a slower rise in permanent placements during June, while temp billings declined further, after a drop in May also. Meanwhile a marked reduction in candidate supply contributed to sharp increases in starting pay.

Panellists reporting an expansion in roles saw growth across multiple sectors.

Commenting on the employment picture, 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.”

A relatively strong labour market and rising pay will continue to support consumer spending according to KPMG. This will be the main driver of economic growth over the next two years, with households’ spending forecast to grow at 1.5% this year before moderating to 1.2% in 2020.

Conversely, KPMG’s analysis predicts that the UK is likely to see depressed business investment in the coming year, as companies respond to Brexit uncertainty by continuing to delay spending. While investment is expected to grow by 1.6% this year, on the back of a strong first quarter which saw businesses ramp up preparations for a potential exit at the end of March, it has been downgraded to 1.1% in 2020 (from 1.6%).

A tight labour market is likely to keep the Bank of England on guard, although near-term uncertainty from Brexit and slowing global momentum mean interest rates are unlikely to be raised before late 2020. 

Ian Beaumont concluded:

“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.”