UK GDP growth in 2016
UK GDP growth in 2017
Cumulative slowdown in UK house prices by 2018 due to vote to leave EU
Potential extra jobs in North of England regions by 2025
UK economic growth had already slowed from around 3% in 2014 to around 2% before the EU referendum due to slower global growth, but the vote to leave the EU is likely to lead to a significant further slowdown.
In our main scenario, we now project UK growth to slow to around 1.6% in 2016 and 0.6% in 2017, largely due to the increased political and economic uncertainty following the ‘Brexit’ vote.
The UK would narrowly avoid a recession in this main scenario, although there are particularly large uncertainties around any such projections after the Brexit vote.
The main reason for the slowdown will be a decline in business investment, particularly from overseas in areas like commercial property. This is being driven by economic and political uncertainty in the short term, as well as concerns about the UK’s future trading relationships with the EU in the longer term.
Consumer spending growth is projected to hold up better, but will still slow from previous strong rates, dropping to around 1.3% in 2017 in our main scenario. This reflects the impact of a weaker pound in pushing up import prices and squeezing the real spending power of households, as well as lower consumer confidence levels and slower jobs growth.
Business and financial services sector growth will slow but should remain positive in 2016-17. But construction companies and capital goods manufacturers will suffer from lower investment levels, although some manufacturing exporters will benefit from the weaker pound.
House price growth is likely to slow due to uncertainty relating to Brexit. We do not expect a major house price crash, but average UK prices by 2018 could be around 8% lower than if the UK had voted to stay in the EU in our main scenario.
However, we still expect average UK house prices to rise in our main scenario even with the effects of Brexit. We estimate that prices could be around 8% higher on average in 2018 than they were in 2015, although there is a broader than usual range of uncertainty around this central estimate.
London may be particularly hard hit due to the weakening of international investor demand, with the impact of Brexit being to reduce average London house prices in 2018 by around £60,000 relative to a scenario where the UK voted to remain in the EU.
Despite this moderation of house price growth, first time buyers still face a tough challenge to get on the property ladder, with a potential average savings period for a deposit of around 19 years for young people without family assistance. This remains a major barrier for generation rent to get on the housing ladder, emphasising the need both to build more homes and to increase the quality of rented accommodation in the UK.
For more details please download the article, and explore our regional house price analysis using the interactive tool below.
Average income levels in the Northern regions of England have lagged behind the UK average for decades, in part reflecting relatively low average levels of skills and R&D spending in these areas. But employment growth and inward investment levels have been relatively high in Northern regions in some recent periods.
Uncertainties relating to Brexit could dampen growth in all UK regions over the next few years, but the EU vote has also focused renewed attention on the need for increased investment in the Northern Powerhouse to boost infrastructure, skills and innovation in the longer term. If this investment can be made, we estimate that there could be almost 200,000 extra jobs in the North of England regions by 2025 as compared to 2015, after the initial shock from Brexit fades.
For more details, please download the article.