UK Economic Outlook

Prospects for the housing market and the impact of AI on jobs

July 2018

Summary

In our main scenario, we project UK growth to remain modest at around 1.3% in 2018 and 1.6% in 2019. This is due to continued subdued real consumer spending growth (see chart opposite) and the drag on business investment from ongoing economic and political uncertainty relating to the outcome of the Brexit negotiations.

The stronger global economy, and the competitive value of the pound, have boosted UK exports and inbound tourism, offering some support for overall UK GDP growth that should continue through 2018. However, the Eurozone economy has slowed recently and any further escalation of international trade tensions could dampen global growth in 2019 and beyond.

Service sector growth should remain modest but positive in 2018-19, while manufacturing also retains some positive momentum despite a slowdown in early 2018. But the construction sector has fallen back due to the weakness of commercial property investment and this looks set to continue.

London has grown significantly faster than other UK regions for most of the past three decades, but recently there have been signs from both the labour and housing markets that London’s relative performance has been less strong. We therefore expect London to grow at only slightly above the UK average rate in 2018-19, with limited variations in growth across regions over this period.

Download the full report below for our detailed analysis, including special features on housing and the potential impact of AI and related technologies on jobs. And use our data tool to explore trends and prospects for house prices in your region.

Click here to explore the data

 

Consumer spending boosted UK GDP growth in 2015-16, but we expect it to be a drag on growth in 2018-19
Share

AI and related technologies should create as many jobs as they displace

AI and related technologies such as robotics, drones and driverless vehicles could displace many jobs formerly done by humans, but will also create many additional jobs as productivity and real incomes rise and new and better products are developed.

We estimate that these countervailing displacement and income effects on employment are likely to broadly balance each other out over the next 20 years in the UK, with the share of existing jobs displaced by AI (c.20%) likely to be approximately equal to the additional jobs that are created (see chart below).

 

AI and related technologies projected to create as many jobs as they displace in UK over next 20 years: 20% of UK jobs estimated to be created and -20% displaced by AI over period to 2037.
Share

Although the overall effect on UK employment is estimated to be broadly neutral in our central projections, there will inevitably be variations by industry sector. The sectors that we estimate will see the largest net increase in jobs due to AI over the next 20 years include health (+22%), professional, scientific and technical services (+16%) and education (+6%). The sectors estimated to see the largest net long-term decrease in jobs due to AI include manufacturing (-25%), transport and storage (-22%) and public administration (-18%).

We identify a number of policy areas where action could help to maximise the benefits of AI (e.g. boosting research funding, ensuring competition is adequate to ensure productivity gains are passed on to consumers) and/or mitigate the costs (e.g. a national retraining programme for displaced workers).

House price growth to remain moderate across UK and negative in London this year

In our main scenario, we project a further softening of UK house price growth to around 3% in 2018 and we expect this to continue at a similar average rate in the medium term to 2025. This implies that the average UK house price would rise from £221,000 in 2017 to around £285,000 by 2025. Price growth at this pace would mean that the ratio of house prices to earnings would remain broadly stable, but still at high levels by historical standards.

We expect that most regions will experience moderate house price growth in 2018 broadly similar to the UK average. The exception is London, where we project that average house prices could drop by nearly 2% in 2018 compared to 2017.

Explore national and regional house price trends and prospects further using the data tool below.

Explore the data

 

Please select up to five regions to view
Done
    Please select up to five regions to view
    Average house prices by UK region (£)
    Projections
    Annual house price growth rates by region (%)
    Cumulative price increase 2017-22
    Source: ONS data for 2007-17, PwC projections for 2018-22
    Share

    Contact us

    John Hawksworth
    Chief UK Economist, PwC United Kingdom
    Tel: +44 (0) 7841 803665
    Email

    Richard Snook
    Economist, PwC United Kingdom
    Tel: +44 (0) 7850 516542
    Email

    Follow us