UK growth to remain modest in 2019-20 due to Brexit-related uncertainty

Nov 26, 2019

UK growth to remain modest in 2019-20 due to Brexit-related uncertainty

  • Economic growth to remain modest at around 1.2% in 2019 and 1% in 2020, assuming an orderly exit from the EU, but risks are weighted to the downside

  • Consumer spending has continued to drive the economy so far, but the housing market has cooled and business investment remains on a declining trend

  • The Bank of England is expected to keep interest rates on hold until there is clarity over both Brexit and the global economy

PwC’s latest UK Economic Outlook projects that UK economic growth is likely to remain subdued, growing by around 1.2%  in 2019 and 1% in 2020 - significantly below its long term average rate of around 2%. 

According to the report, economic growth has slowed over the past two years primarily due to a dampening of business investment, resulting from both a lack of clarity over Brexit as well as heightened global trade tensions.

Although consumer spending has continued to drive the UK economy, supported by recent rises in real incomes, a cooling housing market coupled with slower jobs growth means there is likely to be only moderate consumer spending growth of around 1.2% in 2019 and 1.4% in 2020.

John Hawksworth, chief economist at PwC commented:

“UK economic growth is likely to remain choppy throughout the rest of this year and in early 2020 . However, there could be a modest bounce in business investment later in 2020 if the UK achieves an orderly Brexit, but the uncertain global economic outlook could hold back a stronger recovery in investment next year.

“Any potential weakness in private sector spending in 2020 should be offset at least in part by stronger trends in government spending. Both major political parties have shifted away from austerity, which is likely to support growth in 2020, irrespective of the outcome of the forthcoming general election. But this will also leave a bigger budget deficit to deal with in the longer term.”

PwC forecasts  that all 12 UK regions across  will see modest but positive growth in 2019 and 2020. Although in previous years London has generally had the strongest growth rate of any UK region, PwC predicts it will grow only slightly faster than the UK average in 2019-20, due partly to the greater exposure of some London activities, such as the City, to adverse effects of Brexit uncertainty. 

Jing Teow, senior economist at PwC commented:

“Our latest projections indicate that the South East, South West and Scotland should perform reasonably well both this year and next, but the differences from the UK average growth rate are small. 

“By contrast, the North East, Wales and Northern Ireland are projected to lag behind slightly with growth of only around 1% in 2019 and 0.8% in 2020.”

The UK Economic Outlook says that most industry sectors can expect relatively modest growth in 2019-20, though short-term trends remain dependent on how events develop around Brexit. The distribution, hotels and restaurants sector remained strong in the first half of 2019, but a slowdown is expected next year, whereas the weakened business services and finance sector could enjoy a modest recovery in 2020 assuming an orderly Brexit can be achieved.  The manufacturing and construction sectors have experienced considerable volatility in recent years and are unlikely to see sustained recovery until there is clarity on both Brexit and the global trade outlook.

As inflation has fallen back below the Bank of England's 2% target in recent months, real earnings have started to grow again at a relatively strong pace. While this upward trend is expected to continue into 2020, it is difficult for strong real wage growth to be sustained on a longer-term basis unless productivity also picks up. The productivity challenge is the focus of the special research articles in PwC’s latest UK Economic Outlook. 

Ends.

Notes to editors

About the UKEO:

PwC’s key projections for the UK economy are summarised in the table below:

  2019 2020

Real GDP growth

1.2

1.0

Consumer spending growth

1.2

1.4

Fixed investment growth

-0.3

-0.5

Inflation (CPI)

1.9

1.6

Source: PwC main scenario projections assuming an orderly Brexit

Economic growth is only one of several indicators that should be considered in assessing the performance of regions and cities across the UK, as discussed in more detail in our latest Good Growth for Cities report, published in November 2019 and available here: https://www.pwc.co.uk/goodgrowth

The full UK Economic Outlook will be published on 26th November 2019 at: https://www.pwc.co.uk/services/economics-policy/insights/uk-economic-outlook.html

Ends.

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