UK Economic Outlook 2007 Q1 2008 Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1

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Transcript of UK Economic Outlook 2007 Q1 2008 Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1

  • UK Economic Outlook

    July 2019

  • PwC UK Economic Outlook

    Contents

    2

    • Global growth outlook

    • UK economic trends and prospects

    • UK housing market outlook: assessing the affordability of renting

    • How does UK labour market performance compare to other OECD countries?

  • Global growth outlook

  • PwC UK Economic Outlook

    We expect 2019 to be a less impressive year for the global economy than 2018, with slower growth in the US, China and Europe

    4

    Weather icons based on comparisons of projected GDP growth rates with potential GDP growth rates

    Key

    = % GDP growth in 2019 Country

    x.x

    Global (MER) 2.8%

    Global (PPP) 3.4%

    Eurozone 1.1%

    France

    1.2

    Mexico

    1.8

    US

    2.3

    Spain

    2.3

    UK

    1.4 Germany

    0.7

    Canada

    1.8

    Russia

    1.5

    Greece

    2.0

    Italy

    0.1

    Japan

    1.0

    South Africa

    1.3Brazil

    1.3

    Australia

    2.2

    China

    6.3

    India

    7.3

    Ireland

    3.4

    Source: PwC main scenario

  • PwC UK Economic Outlook

    In 2020, growth could pick up slightly in the Eurozone, but may continue to slow in the US and China

    5

    Weather icons based on comparisons of projected GDP growth rates with potential GDP growth rates

    Key

    = % GDP growth in 2020 Country

    x.x

    Global (MER) 2.8%

    Global (PPP) 3.5%

    Eurozone 1.6%

    France

    1.5

    Mexico

    2.7

    US

    1.8

    Spain

    1.8

    UK

    1.3 Germany

    1.6

    Canada

    1.8

    Russia

    1.8

    Greece

    2.2

    Italy

    0.9

    Japan

    0.3

    South Africa

    1.7Brazil

    2.2

    Australia

    2.7

    China

    6.2

    India

    7.5

    Ireland

    3.7

    Source: PwC main scenario

  • UK economic trends and prospects

  • PwC UK Economic Outlook

    UK GDP growth picked up in Q1 2019 due to stockpiling ahead of the original Brexit deadline, but has slowed again since then

    7

    -2.0%

    -1.5%

    -1.0%

    -0.5%

    0.0%

    0.5%

    1.0%

    1.5%

    2.0%

    Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

    2016 2017 2018 2019

    % c

    h a

    n g e

    , q u

    a rt

    e r

    o n

    q u

    a rt

    e r

    Source: ONS GDP Consumer expenditure Business investment

  • PwC UK Economic Outlook

    The services sector has grown steadily since the financial crisis. Manufacturing more subdued, while construction has been volatile

    8

    70

    80

    90

    100

    110

    120

    130

    2007 Q3 2008 Q3 2009 Q3 2010 Q3 2011 Q3 2012 Q3 2013 Q3 2014 Q3 2015 Q3 2016 Q3 2017 Q3 2018 Q3

    Index (Q1 2007 = 100)

    Source: ONS Services GDP Manufacturing Construction

    Services

    GDP

    Manufacturing

    Construction

  • PwC UK Economic Outlook

    The services PMI has gradually slowed since 2013, while a stronger manufacturing performance in 2017 has gone into reverse recently

    9

    Purchasing Managers’ Indices of business activity

    30

    35

    40

    45

    50

    55

    60

    65

    2007 JAN 2008 MAY 2009 SEP 2011 JAN 2012 MAY 2013 SEP 2015 JAN 2016 MAY 2017 SEP 2019 JAN

    Source: Markit/CIPS Services Manufacturing

    Above 50 indicates

    rising activity levels Services

    Manufacturing

  • PwC UK Economic Outlook

    Sterling has fallen back against the dollar since early 2018 and has been relatively weak against the euro ever since the EU referendum

    10

    US dollar and euro exchange rates against the pound

    EU referendum

    1.0

    1.1

    1.2

    1.3

    1.4

    1.5

    1.6

    2016 JAN

    2016 MAR

    2016 MAY

    2016 AUG

    2016 OCT

    2016 DEC

    2017 MAR

    2017 MAY

    2017 AUG

    2017 OCT

    2017 DEC

    2018 MAR

    2018 MAY

    2018 JULY

    2018 OCT

    2018 DEC

    2019 MAR

    2019 MAY

    US Dollar Euro

    USD/£

    EUR/£

    Source: Bank of England

  • PwC UK Economic Outlook

    The economy has created a record number of jobs in recent years, but productivity growth has remained weak ever since the crisis

    11

    85

    90

    95

    100

    105

    110

    2000 Q1

    2000 Q4

    2001 Q3

    2002 Q2

    2003 Q1

    2003 Q4

    2004 Q3

    2005 Q2

    2006 Q1

    2006 Q4

    2007 Q3

    2008 Q2

    2009 Q1

    2009 Q4

    2010 Q3

    2011 Q2

    2012 Q1

    2012 Q4

    2013 Q3

    2014 Q2

    2015 Q1

    2015 Q4

    2016 Q3

    2017 Q2

    2018 Q1

    2018 Q4

    Source: ONS Productivity (per worker) Employment

    Index (2008 Q1 = 100) Employment

    Productivity

  • PwC UK Economic Outlook

    In our main scenario, UK growth is projected to average 1.3-1.4% assuming an orderly Brexit, but risks are weighted to the downside

    12

    R e a

    l G

    D P

    ( %

    c h

    a n

    g e

    , y e

    a r

    o n

    y e

    a r)

    -8%

    -6%

    -4%

    -2%

    0%

    2%

    4%

    2007 Q1 2008 Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1 2018 Q1 2019 Q1 2020 Q1 2021 Q1

    Main scenario Weak growth Strong growth

    Projections

    Source: ONS, PwC

  • PwC UK Economic Outlook

    Growth projected to be similar across most UK regions in 2019-20, with London no longer as dominate as in previous periods

    13

    0.0%

    0.2%

    0.4%

    0.6%

    0.8%

    1.0%

    1.2%

    1.4%

    1.6%

    1.8%

    South East Scotland South West

    East Midlands

    UK East London North West West Midlands

    Wales Yorks & Humber

    North East N. Ireland

    2019

    2020

    Source: PwC

    R e a

    l G

    D P

    ( %

    c h

    a n

    g e

    , y e

    a r

    o n

    y e

    a r)

  • PwC UK Economic Outlook

    In our main scenario, inflation remains close to its 2% target, but much depends on the exchange rate and commodity prices

    14

    Alternative UK inflation (CPI) scenarios

    % c

    h a

    n g e

    , y e

    a r

    o n

    y e

    a r

    Projections

    0%

    1%

    2%

    3%

    4%

    5%

    2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1 2018 Q1 2019 Q1 2020 Q1

    High inflation Main scenario Low inflation Inflation target

    Source: ONS, PwC

  • PwC UK Economic Outlook

    Average earnings are now growing faster than prices and we expect this to continue in 2019-20 in our main scenario

    15

    CPI inflation vs. average earnings growth

    % c

    h a

    n g e

    , y e

    a r

    o n

    y e

    a r

    0%

    1%

    2%

    3%

    4%

    5%

    2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

    Source: ONS, PwC

    Prices (CPI) Average weekly earnings (excl bonus)

    Prices (CPI)

    Earnings

    Projections

  • PwC UK Economic Outlook

    Summary: UK economic prospects and policy implications

    16

    1 UK economic growth has slowed as

    Brexit-related uncertainty has led to a

    decline in business investment. But

    consumer spending has held up

    better so far.

    4 In our main scenario we assume a

    single quarter-point interest rate rise

    at some point in 2020 assuming an

    orderly Brexit. But rates could be cut

    again if there is a no deal Brexit.

    2 Assuming that a ‘no deal’ Brexit is

    avoided, our main scenario is for UK

    GDP growth to remain modest at

    around 1.3%-1.4% on average in

    2019-20.

    5 There are particularly large

    uncertainties around UK economic

    projections at present. A disorderly

    Brexit could see the economy shrink,

    despite some offset from likely

    mitigating actions, and businesses

    should prepare accordingly.

    3 Most industry sectors are projected to

    see relatively slow growth in 2019,

    though this is highly dependent on

    the Brexit outcome. Manufacturing

    and other export-intensive sectors

    also face downside risks from any

    further deceleration in global growth

    in 2019-20.

  • UK housing market outlook: assessing the affordability of renting

  • PwC UK Economic Outlook

    0

    20

    40

    60

    80

    100

    16- 24

    25- 34

    35- 44

    45- 54

    55- 64

    65+ 16- 24

    25- 34

    35- 44

    45- 54

    55- 64

    65+ 16- 24

    25- 34

    35- 44

    45- 54