Schroders warning over Brexit uncertainty

Fund manager Schroders has sounded a warning over the apparent health of the UK economy, saying Brexit stockpiling could be boosting growth temporarily.

Schroders senior European economist and strategist, Azad Zangana, said that the medium to long-term economic outlook for the UK will be heavily influenced by Brexit. While the Bank of England has downgraded its growth forecasts, recent data has been better than expected, which could lead to upward revisions for UK growth. Zangana said that an analysis of contributions to GDP showed that manufacturing activity was responsible for part of the growth boost, However, this was partly due to companies building up inventories of finished goods, parts and raw materials. And the analysis also showed a worrying weakness in services.

Zangana added that the Bank of England looks unlikely to raise rates, and that government should take note. “Celebrating the forthcoming pick-up in GDP growth for the first quarter could prove to be premature. Indeed, Chancellor Philip Hammond has indicated that he may need to delay the next comprehensive spending review due to the delay in Brexit. Committing to a multi-year spending programme (which is likely to be stimulative) at a time of great uncertainty would be a big gamble.”