NI growth to remain subdued in 2019-20 as Brexit uncertainty persists

  • Economic growth at the lowest of the UK regions at 1.2% in 2019, falling to 1% in 2020
  • Projections assume an orderly Brexit but risks are weighted to the downsi
  • UK growth projection remains modest at 1.4% in 2019 and 1.3% in 2020
  • Consumer spending has continued to drive the economy so far, but the housing market has cooled and businesses remain cautious about investing
  • Northern Ireland’s housing market continues to prove more resilient than other regions though, despite growth of almost 4% in 2020, prices will remain the lowest

Northern Ireland’s economic growth is likely to remain the lowest in the UK, according to PwC’s latest UK Economic Outlook.

The report shows a growth projection of 1.2% in 2019, falling to 1% in 2020 – matching the North East of England. The picture of the UK as a whole is also subdued, growing by around 1.4% on average in 2019 and a similar rate in 2020.

The UKEO 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, it is put into context by figures from the Financial Lives Survey which reported that Northern Ireland adults borrow more on store credit cards and catalogues than any other UK region, with 10% considered to be ‘in difficulty’ financially. In addition, across the UK, job creation is likely to slow over the next year and business investment is likely to remain subdued until the situation on Brexit becomes clearer.

The most optimistic picture comes from the hotels sector, which is projected to deliver Northern Ireland’s greatest growth, at 3.5% in 2019 before falling back to 1.6% in 2020, although this is above the UK average of 2.6% and 1% respectively.

The report predicts 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.

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 levels.

“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.”

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 in Northern Ireland are projected to rise by 3.2% in 2019 and 3.9% in 2020, the third highest across the regions. However, prices remain lowest here with the average house price rising to £158,000 in 2020 compared to £189,000 in Wales and £170,000 in Scotland. The notable exception in house price growth is in 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 sector face downside risks from any further deceleration in global growth in 2019-20 owing to heightened trade tensions.

 

 

John Hawksworth

John Hawksworth, chief economist at PwC

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