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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 2019Country
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
1.4Germany
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 2020Country
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
1.3Germany
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
ha
nge
, qu
art
er
on
qu
art
er
Source: ONSGDP 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: ONSServices 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
2016JAN
2016MAR
2016MAY
2016AUG
2016OCT
2016DEC
2017MAR
2017MAY
2017AUG
2017OCT
2017DEC
2018MAR
2018MAY
2018JULY
2018OCT
2018DEC
2019MAR
2019MAY
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
2000Q1
2000Q4
2001Q3
2002Q2
2003Q1
2003Q4
2004Q3
2005Q2
2006Q1
2006Q4
2007Q3
2008Q2
2009Q1
2009Q4
2010Q3
2011Q2
2012Q1
2012Q4
2013Q3
2014Q2
2015Q1
2015Q4
2016Q3
2017Q2
2018Q1
2018Q4
Source: ONSProductivity (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
Rea
l G
DP
(%
ch
an
ge
, ye
ar
on
ye
ar)
-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 SouthWest
EastMidlands
UK East London North West WestMidlands
Wales Yorks &Humber
North East N. Ireland
2019
2020
Source: PwC
Rea
l G
DP
(%
ch
an
ge
, ye
ar
on
ye
ar)
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
ha
nge
, ye
ar
on
ye
ar
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
ha
nge
, ye
ar
on
ye
ar
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
1UK 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.
4In 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.
2Assuming 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.
5There 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.
3Most 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
55-64
65+ 16-24
25-34
35-44
45-54
55-64
65+
1998/99 2017/18
Owned outright Buying with a mortgage Social renting Private renting
Compared to the late 1990s, 25-34 year olds are more than twice as likely to rent privately, opening up an age gap in home ownership
18
Source: PwC analysis of ONS data
Pe
rcen
tage o
f h
ou
se
hold
s
PwC UK Economic Outlook
London
SouthEast
EastSouth West
UK
Yorkshire and the Humber
Unaffordable
Affordable
£15,000
£20,000
£25,000
£30,000
£35,000
£40,000
£45,000
£15,000 £20,000 £25,000 £30,000 £35,000
Inco
me
requ
ire
d f
or
me
dia
n r
en
t to
be
'aff
ord
able
'
Median regional income
Rent represents a major share of income, and is unaffordable in much of the South of England using a 30% benchmark
19
Source: PwC analysis of ONS data for 2017/18
PwC UK Economic Outlook
0% 10% 20% 30% 40% 50% 60%
London
South East
East
South West
United Kingdom
West Midlands
East Midlands
Scotland
North West
Wales
North East
Yorkshire and The Humber
Median rent as a proportion of median income for 22-29 year olds
In London, “generation rent” spend over half of their income (53%) on private rent
20
Source: PwC analysis of ONS data for 2018
30% affordability
threshold
PwC UK Economic Outlook
Many key public service jobs do not offer the wages necessary for rents to be affordable, particularly in London and the South East
21
Source: PwC analysis of ONS data for 2018. Note that comparable data are not available for Northern Ireland.
Police officersSecondary school
teachersSocial workers Fire service officers
Primary & nursery
teachersNurses & midwives
Prison service
officers
Wales 15% 15% 18% N/A 16% 19% N/A
North East 14% 15% 20% 18% 18% 18% 19%
Scotland 15% 17% 17% 20% 18% 22% 15%
Yorkshire and The Humber 14% 18% 19% 17% 17% 19% 24%
North West 15% 17% 18% 19% 19% 21% 25%
West Midlands 17% 18% 20% 20% 22% 25% 24%
East Midlands 17% 18% 21% N/A 24% 23% 26%
South West 19% 21% 28% 25% 27% 29% N/A
East 20% 22% 26% 26% 26% 32% 30%
South East 23% 27% 30% 27% 33% 34% 33%
London 29% 33% 34% 36% 40% 39% 45%
Median rent as a proportion of median income
PwC UK Economic Outlook
0
2
4
6
8
10
12
14
16
18
% o
f b
en
efit u
nits*
by h
ou
sin
g t
en
ure
Shared private renting in London
A lack of affordable housing has contributed to a sharp rise in shared living in London
22
Source: PwC analysis of ONS data*A benefit unit is defined as a single adult or a married and cohabiting couple and any dependent children
PwC UK Economic Outlook
Summary: UK housing market outlook and policy implications
23
1Compared to the late 1990s, 25-34
year olds are more than twice as
likely to rent privately, while the
proportion of households aged 65+
owning their homes outright has
risen significantly.
4Many key public service jobs do not
offer sufficient wages for affordable
renting. This has implications for
social mobility and productivity
growth, and can lead to shortages of
key workers in high cost areas.
2For housing to be considered
affordable, it conventionally must cost
less than 30% of gross income.
London, the South East, the South
West and the East of England were
unaffordable on this basis in 2018.
5A lack of affordable housing seems
to be pushing many people into living
in shared or lower quality
accommodation. This may hold down
rents per person, suggesting that
standard affordability measures may
understate the scale of the problem.
3Members of “generation rent” in
London had to spend over half (53%)
of their income on private rent in
2018, while those in Yorkshire spent
just 22%.
Implications for government policy
and business
The government needs to press on
with efforts to increase the supply of
genuinely affordable housing to both
buy and rent. Employers can also
take action, for example by moving to
more affordable areas and/or
increasing wages in high cost areas.
How does UK labour market performance compare to other OECD countries?
PwC UK Economic Outlook
The UK has achieved rapid jobs growth since 2012, with employment rates now at record high levels of over 75%
25
60
62
64
66
68
70
72
74
76
78
1862 1874 1886 1898 1910 1922 1934 1946 1958 1970 1982 1994 2006 2018
Em
plo
ym
en
t ra
te (
%, 1
6-6
4 y
ea
r-o
lds)
Source: ONS, Bank of England
PwC UK Economic Outlook 26
0
10
20
30
40
50
60
70
80
90
Em
plo
ym
en
t R
ate
(%
)However, when compared to the rest of the OECD, the UK’s performance is less impressive, ranking 13th out of 35 countries
Source: OECD
PwC UK Economic Outlook 27
Iceland
JapanGermany
United Kingdom
Canada
United States
FranceItaly
Turkey
40
50
60
70
80
90
100
40 50 60 70 80 90 100
20
18
em
plo
ym
en
t ra
te (
%)
2007 employment rate (%)
Employment rate 2007 vs 2018
Most OECD countries have higher employment rates than pre-crisis, with Germany and Japan overtaking the UK since 2007
Source: PwC analysis of OECD data
PwC UK Economic Outlook 28
0
10
20
30
40
50
60
70
80
90
100
2018 Golden Age Index scores
2018 2007 OECD 2018 Average
On our Golden Age Index, which looks at labour market conditions for those aged 55+, the UK is still slightly below the OECD average despite improvements since 2007
Source: PwC analysis of OECD data
UK
PwC UK Economic Outlook 29
0
10
20
30
40
50
60
70
80
2018 Youth Employment Index scores
2018 2007 2018 OECD Average
On our Youth Employment Index, which looks at employment and training for those under 25, the UK ranks 17th out of 35 countries despite recent improvements
Source: PwC analysis of OECD data
PwC UK Economic Outlook 30
Japan
United States
Germany
Canada
United Kingdom
France
Italy
0
10
20
30
40
50
60
70
80
30 40 50 60 70 80 90 100
20
18
YE
I S
co
re
2018 GAI Score
PwC Youth Employment Index (YEI) vs Golden Age Index (GAI) Comparison
There is a statistically significant positive correlation between YEI and GAI scores, dispelling the myth that encouraging older workers to remain in the workforce crowds out younger workers
Source: PwC analysis of OECD data
PwC UK Economic Outlook 31
0
10
20
30
40
50
60
70
80
90
2018 Labour Market Performance Index Scores
2018 2007 OECD 2018 Average
On our Labour Market Performance Index, which combines GAI, YEI and Women In Work index scores, the UK is around OECD average
Source: PwC analysis of OECD data
PwC UK Economic Outlook
Summary: UK labour market comparison and policy implications
32
1The UK’s employment rate is at a
record high of over 75%, but it still
ranks only towards the middle of the
OECD range, coming 13th out of 35
countries.
4The potential GDP boost for the UK
from improving labour market
performance to match that of
Sweden for women, younger and
older workers could be around12% of
GDP (around £250bn at 2018 values)
2The UK has improved its scores on
both PwC’s Youth Employment Index
and our Golden Age Index since 2007,
but is only performing at around the
OECD average level on these indices,
as other countries have also improved.
5Realising these potential gains will
require action to overcome age and
gender discrimination, boost
vocational training, help with
retraining older workers to adapt to
new technologies and further improve
childcare provision.
3On a new composite PwC Labour
Market Performance Index, combining
results from our Youth Employment,
Golden Age and Women in Work
indices, the UK is also close to the
OECD average, as most countries
have improved since 2007, just as the
UK has done. Iceland and Sweden are
the two top performers on this
combined index across the OECD.
PwC UK Economic Outlook
Contacts for more information about this report
33
John Hawksworth
Chief Economist
Mike Jakeman
Senior Economist
Jamie Durham
Economist
Tilly Thomas
Economist
This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
© 2019 PricewaterhouseCoopers LLP. All rights reserved. PwC refers to the UK member firm, and may sometimes refer to the PwC network. Each member firm is a
separate legal entity. Please see www.pwc.com/structure for further details.
190318-204722-MJ-OS
pwc.co.uk/economics
Frederica Martin
Economist
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