Prospects for UK debt and the economy in the 2020s
projected GDP growth in 2018
projected GDP growth in 2019
projected gross debt-to-GDP ratio in 2023
projected annual average GDP growth in 2020s
In our main scenario, we project UK growth to remain modest at around 1.3% in 2018 and 1.6% in 2019. This reflects the drag on business investment from ongoing economic and political uncertainty relating to the outcome of the Brexit negotiations. But the higher government spending and short-term tax cuts announced in the Budget will provide some boost to growth in 2019.
The strong global economy, and the competitive value of the pound, have boosted UK exports and inbound tourism over the past two years. But the Eurozone economy has slowed recently and any escalation of international trade tensions could dampen global growth in 2019 and beyond.
Service sector growth should remain modest but positive in 2019, but manufacturing growth has slowed markedly. Construction sector output has also fallen back since early 2017 and looks set to remain relatively weak in the short term, given the uncertainty around Brexit.
London has grown 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.
In our main scenario with a smooth Brexit, we assume that the Bank of England raises interest rates by a quarter of a percent to 1% in mid-2019. But the precise timing of this will be data-dependent and the pace of any subsequent rate increases are likely to remain gradual.
Download the full report below for our detailed analysis, including special features on debt and the economy in the 2020s. And use our data tool to explore how the UK economy compares to its peers in the G7.
Over the next five years we expect the government to reduce gradually the size of its debt relative to GDP, but households and companies are both likely to borrow at a faster rate than economic growth. The net effect will be a gradual rise in the economy’s overall debt-to-GDP ratio from 252% in 2017 to around 260% in 2023.
Assuming that the Bank of England gradually raises its official interest rate to 2% by 2023, we project that total debt servicing costs in the UK economy could rise from an estimated 7.7% of GDP in 2017 to around 9.6% of GDP in 2023. This will squeeze the discretionary spending power of both households and companies.
UK economic growth averaged below 2% in each of the first two decades of this century, the weakest performance in any decade since the Second World War.
Our central estimate is that average UK growth may remain relatively subdued, at around 1.75% per annum in the 2020s, allowing for the effects of an ageing population.
But there is scope for government, working with business, to boost UK growth to 2% or more by promoting artificial intelligence and other new technologies, reforming tax and regulation to support productivity growth, encouraging greater participation in the labour force by older workers, and retaining an open approach to global trade after Brexit.
Use our interactive tool below to explore the data and see how the UK's performance since 2000 has compared with other G7 economies and the euro area.