Economic growth to remain modest at 1.4% in 2019 and 1.3% in 2020, assuming an orderly Brexit, but risks are weighted to the downside
Consumer spending has continued to drive the economy so far, but the housing market has cooled and businesses remain cautious about investing
Most regions are expected to see house price growth of between 2.5% and 4% a year in 2019-2020, with the exception of London and the South East, where house prices are expected to fall in 2019 and record only very modest growth in 2020
PwC’s latest UK Economic Outlook report projects that UK economic growth is likely to remain subdued, growing by around 1.4% on average in 2019 and a similar rate in 2020. The report finds that economic growth has slowed since early 2018 due primarily to the dampening of business investment as a result of Brexit-related uncertainty and heightened global trade tensions.
While consumer spending - supported by recent rises in real incomes - has continued to drive the economy so far, the housing market has cooled and job creation is likely to slow over the next year. In addition, business investment is likely to remain subdued until the situation on Brexit becomes clearer.
John Hawksworth, chief economist at PwC commented:
“UK economic growth is likely to be choppy this year as stockbuilding rises and falls around past and future Brexit deadlines. But the underlying trend is for continued modest growth, possibly picking up later next year if the fog of uncertainty around Brexit clears and business investment regains momentum.
Risks to growth are weighted to the downside due to the possibility of a no deal Brexit, although there are also brighter spots to the economy such as rising real earnings levels linked to record employment rates.
We do not expect any change in UK interest rates over the next few months as the MPC waits to see how events unfold in relation to Brexit.”
The report projects that UK growth will be more balanced across regions in 2019-20, with London no longer growing significantly faster than the UK average as has been the norm for most of the past three decades. This is partly due to the greater exposure of some London activities, for example the City, to adverse effects from Brexit related uncertainty, as well as growing constraints on the capital in terms of housing affordability and transport capacity.
Mike Jakeman, senior economist at PwC commented:
“If a no-deal scenario is avoided and greater clarity provided on Brexit, London could see growth pick up to around 1.5% in 2020, although this rate would still be markedly slower than the pace seen in past periods. The South East and Scotland could be the best performing regions this year, while most other English regions are projected to expand at close to the UK average rate of 1.4%. The North East and Northern Ireland are predicted to lag behind slightly with growth of only around 1% in 2019.”
House prices are projected to rise at an average of around 1% this year, but could pick up again gradually from 2020 and rise broadly in line with earnings in the medium term. The picture varies across the UK, however, as most regions are expected to see growth in house prices of between 2.5% and 4% a year in 2019-2020, with the notable exception of London and the South East, where house prices are expected to fall in 2019 and record only very modest growth in 2020.
Most industry sectors are projected to see relatively modest growth in 2019-20, though short-term trends remain volatile and highly dependent on how events develop around Brexit. Manufacturing and other export-intensive sectors face downside risks from any further deceleration in global growth in 2019-20 owing to heightened trade tensions.
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