UK economic forecast
The latest EY ITEM Club forecast has maintained GDP growth projections of 1.5% for 2019 and 1.7% for 2020 after estimated expansion of 1.4% in 2018. The UK economy over 2018 as a whole performed broadly in line with expectations, with GDP growth, inflation and interest rates all coming in very close to the projections made at the start of 2018. The only real surprise was that the unemployment rate came in lower than expected in 2018, although earnings growth only showed clear signs of firming late in the year.
According to the EY ITEM Club’s Winter Forecast, the UK has the overall ingredients needed to achieve a stronger rate of economic growth in 2019 (1.5%) and 2020 (1.7%) compared to 2018 (1.4%), but this is strongly dependent on the UK leaving the EU with a withdrawal deal on 29 March.
We expect consumer price inflation to average at 1.8% in 2019, down from 2.5% in 2018, before rising to 2.0% in 2020. Meanwhile, earnings growth is expected to be 3.5% in 2019 and 3.4% in 2020, up from 2.9% in 2018. Consumer spending is expected to grow 1.5% in 2019 and 1.7% in 2020, compared to 1.6% in 2018.
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.
Listen to our podcast
EY ITEM Club Winter Forecast 2019: Roundup
Listen to EY’s UK Chief Economist, Mark Gregory, as he examines the findings of the Winter Forecast.
With the lack of clarity around the direction that Brexit will go, forecasting the UK economy at the moment is like trying to look through a thick fog. The UK economy performed broadly in line with expectations over 2018, but we are now facing a much more uncertain environment."
The EY ITEM Club ‘no-deal’ forecast highlights the potential magnitude of the economic impact that this scenario would bring. While we would expect a government policy response to seek to mitigate this, a prudent approach to risk management for companies would be to stress test their business, and especially their cash flow, against a short period of severe disruption, followed by a period of low or flat growth."