UK growth has been on a downward trend in recent years. Persistent uncertainty surrounding the outcome of Brexit negotiations, weaker external demand and rising protectionist risks mean conditions for growth will remain tough.
The process of exiting the European Union (EU) is likely to persist as the main influence on the economy for a long time. Our base case is that the UK will eventually land not far from its pre-Brexit status, but the process is likely to be bumpy and drawn out.
In this scenario, growth is likely to be lacklustre, reflecting a decline in economic potential. The supply side of the economy has weakened, reflecting poor productivity growth and unfavourable demographic dynamics.
The Bank of England will probably maintain that a gradual and limited hiking cycle remains appropriate. But further tightening will be conditional on a smooth Brexit transition, an assumption that could unravel.
The policy mix is likely to change, with the fiscal lever taking the front seat at the expen