UK economic forecast
The UK economy will experience tepid growth in 2018 due to a combination of higher inflation, reduced consumer spending and a loss of momentum in the eurozone economy.
Our latest summer forecast expects UK GDP to grow by 1.4% in 2018 (the weakest performance since 2012) and 1.6% in 2019 (downgraded from 1.6% and 1.7%, respectively, in the EY ITEM Club’s Spring Forecast).
A weak first quarter, with GDP rising by 0.2% quarter-on-quarter (q/q) gave the economy a bad start to 2018. However, with a rebound in consumer activity in Q2 and a positive set of business surveys, the EY ITEM Club expects Q2 economic growth to be 0.4%.
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.
Listen to our podcasts
Podcast 1 | EY ITEM Club Summer Forecast 2018: Fast cast: Highlights
Listen to EY’s UK Chief Economist, Mark Gregory’s, fast cast discussing key highlights from the Summer Forecast.
Podcast 2 | EY ITEM Club Summer Forecast 2018: Roundup
Listen to EY’s UK Chief Economist, Mark Gregory, as he examines the findings of the Summer Forecast and considers the implications of the many moving and conflicting forces impacting the UK economy into 2021.
- The EY ITEM Club forecasts GDP growth of 1.4% in 2018, downgraded from 1.6% in our spring forecast.
- After increasing by 1.4% in 2016 and 1% in 2017, the EY ITEM Club sees employment rising by 1.2% this year before growth slows to 0.5% in 2019.
- The EY ITEM Club has maintained a downbeat view of prospective growth in consumer spending, which is expected to run at 1.3% this year, before picking up to 1.5% in 2019.
- One silver lining for consumers is that the EY ITEM Club now expects the Monetary Policy Committee (MPC) to push through only one 25 basis points interest rate rise this year. This will most likely be in August, although a delay until November is possible.
- Following a soft first quarter this year with GDP growth of 0.4%, momentum in the eurozone economy has underwhelmed.
- The boost to exporters that was provided by a weak pound is receding as the currency strengthens. Growth in exports, which stood at 5.4% in 2017, is forecast to drop by the EY ITEM Club to 1.9% in 2018 before rebounding to 2.6% in 2019.
Businesses should be prepared for a low growth economy over the next three years. Regardless of the outcome of the Brexit negotiations, the resulting adjustment is likely to act as a drag on the economy. Plus there are a number of risks to be navigated around consumer spending, higher inflation and global macro-economic uncertainty."