United Kingdom Country Risk Report 20 2018
The hung parliament and Conservative minority government has simultaneously reduced the likelihood of a 'hard' Brexit and increased the likelihood of a 'disorderly' Brexit, in which the UK crashes out of the EU with no transition arrangement and falls back on WTO rules.
In the absence of a Conservative majority, the risk of parliament fail-ing to approve the final deal agreed between the British government and the EU rises.
Preliminary post-Brexit data have proven resilient and the economy will benefit from an uptick in global trade in 2017. The economy still faces massive headwinds from weak investment and productivity growth, and falling real income growth.
While Brexit poses clear downside risks for growth, particularly in the short run, we also see potential upsides over the long term.
However, it remains unclear what terms will define the UK's post-Brexit relationship with the EU, and thus how the referendum result will impact the potential growth of the economy.
The Bank of England (BoE) will keep its policy rate on hold at 0.50% through 2018. With inflation above target, the risk of additional tightening is non-negligible.
The government's fiscal austerity programme has reached the twilight hour. The ruling Conservative party's diminished parlia-mentary position, widely felt austerity fatigue, and likelihood that the economy will run out of steam, suggest increased fiscal support over the medium term.
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