UK Economic Outlook
UK real GDP growth in 2017
UK CPI inflation in 2018
UK real consumer spending growth in 2017
of total UK consumer spending could be on housing and utilities by 2030
UK economic growth held up better than expected in the six months following the Brexit vote, but this began to ease in early 2017 as inflation has risen, squeezing household spending power.
In our main scenario, we project UK growth to slow to around 1.6% in 2017 and 1.4% in 2018 due to slower consumer spending growth and the drag on business investment from Brexit-related uncertainty.
Service sector growth will slow but remain positive in 2017-18, but construction may suffer from lower investment levels. Manufacturing and services exporters should benefit from the weaker pound.
Longer term, we expect the UK economy to grow at around 2% after Brexit, with consumer spending rising at a similar rate but increasingly focused on housing and utilities, financial services and personal care. Spending on food, clothing, alcohol and tobacco will take a declining share of total spending.
Around 30% of existing UK jobs could be at potential risk of automation by the early 2030s, with the most exposed sectors including retail and wholesale, transport and storage, and manufacturing. Less educated workers face the highest risks of automation.
But these new technologies will also boost productivity, wealth and spending. This should generate jobs in service sectors that are less easy to automate, but could also increase income inequality.
Government needs to respond by reshaping education and vocational training to help workers adapt to this fast evolving technological world. Measures to redistribute income should also be considered, but need careful design to avoid adverse incentive effects.
Read on for more details of these findings, or jump to our download section for copies of the full report, summary report, slides and individual articles. You can also explore our estimates of the potential impact of automation on different UK industry sectors and occupational groups further using our data explorer tool.
Watch our short video for an overview of where the UK economy is heading
UK economic growth remained relatively strong at around 2% in the year to Q4 2016, with no immediate deceleration after the ‘Brexit’ vote, but has started to ease in early 2017 as inflation has risen.
In our main scenario, we project UK growth to slow from 1.8% in 2016 to around 1.6% in 2017 and 1.4% in 2018. The UK would avoid recession in this scenario, although risks to growth are still weighted somewhat to the downside given the uncertainties surrounding the Brexit negotiation process. Businesses need to make contingency plans for alternative outcomes to this process.
Consumer spending growth is projected to slow from previous strong rates, dropping from 3% in 2016 to only around 2% in 2017 and 1.7% in 2018 in our main scenario. This reflects a squeeze on household spending power from higher inflation as well as slower jobs growth.
We also expect business investment growth to remain relatively subdued in 2017-18 due to uncertainty about the UK’s future trading relationships with the EU and other geopolitical uncertainties.
The weaker pound should boost net exports, however, together with the gradual strengthening of the world economy we have seen over the past year.
We expect growth in the services sector to slow but remain positive in 2016-17. The construction sector will suffer the most from lower investment levels, but some manufacturing exporters will benefit from the weaker pound.
We project that London will remain the fastest growing region, but its pace of expansion could slow from around 2.5% in 2015 to an average of just under 2% in 2017-18. Other regions are projected to see average growth in 2017-18 of around 1-1.5%, and we do not predict negative growth in any region in either 2017 or 2018 in our main scenario.
The Bank of England is likely to keep monetary policy on hold in the short term, but rate rises could come back on to the agenda next year in our main scenario.
The Budget saw small net giveaways in 2017/18, but the overall stance of fiscal policy will continue to tighten gradually over the following years based on previously announced tax and spending plans.
Consumer spending growth is also projected to slow from previous strong rates, dropping to around 2% in 2017 and 1.7% in 2018 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 expected slower jobs growth.
There may be some offset to this from higher household borrowing in the short term, but there are limits to how much further this can increase as household spending may already exceed household disposable income this year.
In the long run, we expect real consumer spending growth to average around 2% per annum, but the composition of this spending will change. The share of spending on housing and utilities could rise to close to 30% by 2030, while that on food, alcohol, tobacco and clothing declines over time.
Our analysis suggests that around 30% of UK jobs could potentially be at high risk of automation by the early 2030s, lower than the US (38%) or Germany (35%), but higher than Japan (21%).
The risks appear highest in sectors such as transportation and storage (56%), manufacturing (46%) and wholesale and retail (44%), but lower in sectors like health and social work (17%). You can explore the results by sector and occupation in more detail using our interactive data tool below.
In practice, not all of these jobs may actually be automated for a variety of economic, legal and regulatory reasons. Furthermore new automation technologies will both create some totally new jobs in the digital technology area and, through productivity gains, generate additional wealth and spending that will support additional jobs of existing kinds, primarily in services sectors that are less easy to automate.
The net long term impact of automation on total UK employment could therefore be either positive or negative. Average pre-tax incomes should rise due to the productivity gains, but these benefits may not be evenly spread across income groups.
There is a strong case for increased investment in lifelong vocational education and training to help people adapt to increased automation. Universal basic income schemes may also be considered, but suffer from potential problems in terms of affordability and adverse effects on work incentives.