Our Winter forecast notes that UK GDP growth in 2017 was 1.8%, which was better than expected. However, it does compare unfavourably with 2017 GDP growth of 2.5% for the Eurozone, 2.3% for the US and an estimated 3.0% globally.
The momentum from 2017, an improving outlook for consumer spending, and the increased likelihood of a near-term Brexit transition arrangement are expected to support UK growth this year. With this, we have nudged up our UK GDP forecast for 2018 to 1.7%, up from the 1.4% we predicted in our Autumn forecast in October last year.
However, further out, the UK’s limited productivity performance and ongoing Brexit and political uncertainties will see the UK achieve only mid-range growth. With this, we have slightly reduced our GDP growth projections for 2019 to 1.7% (down from 1.8%), 1.9% for 2020 (down from 2.0%), and 2.0% for 2021 (down from 2.2%).
Although we have modestly downgraded our expectation of the UK’s productivity performance, it remains more optimistic than the Office for Budget Responsibility’s latest forecast. Specifically, we forecast output per hour to rise 0.9% in 2018 and then 1.3% annually during 2019-2021.
For our full findings, download our forecast.
2017, a better year than expected …
- GDP growth in 2017 was 1.8%, a better performance than had been expected at the start of the year given Brexit uncertainties and the substantially increased squeeze on consumer purchasing power.
- GDP growth was limited to 0.3% quarter over quarter (q/q) in Q1 and Q2 2017, improving gradually to 0.4% q/q in Q3 and 0.5% q/q in Q4.
- However, this was the weakest expansion since 2012 and was lower than global growth and the stronger expansion in both the Eurozone and US.
Steady, but unspectacular growth forecast for 2018 …
- Our Winter forecast sees GDP growth of 1.7% this year, up from 1.4% projected in October.
- We expect consumer price inflation to fall back to 2.1% by the end of 2018, which will help ease the consumer squeeze.
- We anticipate the Bank of England will raise interest rates gradually, with two hikes in 2018 to 1% and one further hike in 2019 to 1.25%.
- We expect business investment to rise 1.9% in 2018 after an estimated increase of 2.3% in 2017. Investment growth is then forecast to pick up to 2.7% in 2019.
UK businesses need to ensure that they are doing all they can to benefit from the most balanced, strong global growth for a decade. At the same time, while ensuring risks are identified and managed in the UK, now is the time to develop a post-Brexit business strategy identifying where future value will be created."