Slumping pound to Cost UK Dearly

EghtesadOnline: The UK is set to crash down the table of the world's largest economies because of Brexit, a report claims. And an analysis by the Center for Economics and Business Research says the slump in the value of the pound will take its toll on the country's economic growth.

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27 December 2016

As a result France is on course to leapfrog the UK to become the world's fifth largest economy,   Cebr reports.

And by 2030 the UK could only be the world's eight biggest economic powerhouse, behind China, the US, India, Japan, Germany, Brazil and South Korea.

The economic think tank also warns that consumer spending—a key driver of the UK's growth—will be squeezed as the falling pound pushes up inflation.

The pound has dropped 18% against the US dollar and 10% versus the euro since Britain voted to leave the European Union, according to Financial Tribune.

However, Britain is expected to catch up with France in 2021 and overtake the European nation in 2026, but is not forecast to reclaim the heady heights of 2015.

And the "flat white economy"—the burgeoning creative and digital sectors—will help the UK weather some of the downsides of Brexit.

Cebr president Douglas McWilliams said China remained on track to become the world's largest economy.

“India is now growing faster than China and will reach number three by 2024. South Korea overtakes both the UK and France before 2030, as will Brazil. Indonesia reaches the top ten and the Philippines the top twenty by then also," he added.

The Cebr's World League Table, covering 188 countries, places the UK as the seventh largest economy between 2017 and 2025, before slipping back in 2030 to eighth place.

The United States is expected to hold on to its place as the world's largest economy until China sweeps into the top spot in 2030.

But the Cebr warns president-elect Donald Trump's warning he will impose trade tariffs on China and Mexico will damage the US economy and world trade.

Russia is expected to drop back to 14th place in the league table by 2030 after climbing to 12th place next year, the report said.

Britain's economy is expected to grow by 0.4% in the fourth quarter, down from 0.5% in the previous three months, according to forecasts by the Bank of England, Mirror online reported.

The Office for National Statistics revised up UK economic growth for the third quarter on Friday, with gross domestic product expanding 0.6%, up from a previous estimate of 0.5%.

Current-Account Deficit Widens

The current-account deficit widened in the third quarter as Britain posted its worst trade performance in almost three years, MENAFN reported. The difference between money coming into the UK and money sent out was £25.5 billion ($31.3 billion), the Office for National Statistics said Saturday. That's equal to 5.2% of gross domestic product. The trade deficit widened to 2.8%, the most since the fourth quarter of 2013.

The Bank of England has highlighted the current account deficit as a potential risk, if Brexit deters foreign investment. It's forecast to be double that of the US this year at more than 5% of GDP but concern has been partly allayed by the weaker pound, which is expected to boost exports and reduce spending on imports.

Economists see the gap narrowing to about 4% in 2017, making Britain less reliant on the willingness of foreigners to keep buying UK assets.

Firms Optimistic

Nearly two-thirds of British businesses are "optimistic" about their future in the wake of the Brexit vote, a major survey has disclosed.

A poll of 34,000 companies by the Institute of Directors found that 60% of businesses are "optimistic" or "very optimistic" about the year ahead. The businesses, predominantly small or medium-sized, conceded there is "uncertainty" of the vote to leave the European Union.

However, their positivity is in marked contrast to comments by the bosses of Britain's biggest companies, some of whom have criticized Brexit and even threatened to relocate out of the UK.