Latest UK economic and market outlook.
In the US, House and Senate Republicans reconciled differences on the tax reform plan and approved a new version in late December, handing President Trump his first major legislative achievement. Tax cuts for corporations and individuals should provide a modest lift to consumer spending and business investment in 2018. This fiscal boost will come at a time when growth momentum is already robust, with the economy operating at full employment and above long-term potential. However, with inflation still below target, we continue to expect the Fed to maintain its gradual pace of monetary tightening in 2018.
Eurozone manufacturers recently reported their best month on record, suggesting that conditions across the continent ended the year in their healthiest state since before the single currency was established. The recovery should continue to strengthen in 2018, partly due to French labour market reforms that will help to spur growth in the region’s second-largest economy. With the recovery becoming more entrenched, the ECB may choose to end its quantitative easing programme of mass bond buying later this year. However, Eurozone inflation is still weak, meaning monetary policy should remain accommodative.
The UK economy is likely to remain subdued in 2018. We expect business investment to remain on hold and squeezed consumers to curb their spending.However, trade should be a bright spot, with stronger global growth and sterling weakness helping to improve the UK’s trade balance.
Economic momentum in China appears to be losing some steam as we head into 2018, with investment growth and industrial production both weakening recently. Some of the weakness may be due to special factors such as the conclusion of the latest Party Congress. However, the Chinese economy’s slow-but-steady deceleration will likely continue in 2018 amid reforms aimed at curbing the negative externalities of past expansion. Such measures include a stricter environmental policy and tighter regulation in the property market to contain financial risks, both of which will likely exert downward pressure on growth this year.
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