UK Economic Outlook€¦ · 2007 Q1 2008 Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1 2018 Q1 2019 Q1 2020 Q1 2021 Q1 Main scenario Weak growth Strong

UK Economic Outlook

July 2019

PwC UK Economic Outlook

Contents

2

• Global growth outlook

• UK economic trends and prospects

• UK housing market outlook: assessing the affordability of renting

• How does UK labour market performance compare to other OECD countries?

Global growth outlook


We expect 2019 to be a less impressive year for the global economy than 2018, with slower growth in the US, China and Europe

4

Weather icons based on comparisons of projected GDP growth rates with potential GDP growth rates

Key

= % GDP growth in 2019Country

x.x

Global (MER) 2.8%

Global (PPP) 3.4%

Eurozone 1.1%

France

1.2

Mexico

1.8

US

2.3

Spain

2.3

UK

1.4Germany

0.7

Canada

1.8

Russia

1.5

Greece

2.0

Italy

0.1

Japan

1.0

South Africa

1.3Brazil

1.3

Australia

2.2

China

6.3

India

7.3

Ireland

3.4

Source: PwC main scenario


In 2020, growth could pick up slightly in the Eurozone, but may continue to slow in the US and China

5

Weather icons based on comparisons of projected GDP growth rates with potential GDP growth rates

Key

= % GDP growth in 2020Country

x.x

Global (MER) 2.8%

Global (PPP) 3.5%

Eurozone 1.6%

France

1.5

Mexico

2.7

US

1.8

Spain

1.8

UK

1.3Germany

1.6

Canada

1.8

Russia

1.8

Greece

2.2

Italy

0.9

Japan

0.3

South Africa

1.7Brazil

2.2

Australia

2.7

China

6.2

India

7.5

Ireland

3.7

Source: PwC main scenario

UK economic trends and prospects


UK GDP growth picked up in Q1 2019 due to stockpiling ahead of the original Brexit deadline, but has slowed again since then

7

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2016 2017 2018 2019

% c

ha

nge

, qu

art

er

on

qu

art

er

Source: ONSGDP Consumer expenditure Business investment


The services sector has grown steadily since the financial crisis. Manufacturing more subdued, while construction has been volatile

8

70

80

90

100

110

120

130

2007 Q3 2008 Q3 2009 Q3 2010 Q3 2011 Q3 2012 Q3 2013 Q3 2014 Q3 2015 Q3 2016 Q3 2017 Q3 2018 Q3

Index (Q1 2007 = 100)

Source: ONSServices GDP Manufacturing Construction

Services

GDP

Manufacturing

Construction


The services PMI has gradually slowed since 2013, while a stronger manufacturing performance in 2017 has gone into reverse recently

9

Purchasing Managers’ Indices of business activity

30

35

40

45

50

55

60

65

2007 JAN 2008 MAY 2009 SEP 2011 JAN 2012 MAY 2013 SEP 2015 JAN 2016 MAY 2017 SEP 2019 JAN

Source: Markit/CIPS Services Manufacturing

Above 50 indicates

rising activity levels Services

Manufacturing


Sterling has fallen back against the dollar since early 2018 and has been relatively weak against the euro ever since the EU referendum

10

US dollar and euro exchange rates against the pound

EU referendum

1.0

1.1

1.2

1.3

1.4

1.5

1.6

2016JAN

2016MAR

2016MAY

2016AUG

2016OCT

2016DEC

2017MAR

2017MAY

2017AUG

2017OCT

2017DEC

2018MAR

2018MAY

2018JULY

2018OCT

2018DEC

2019MAR

2019MAY

US Dollar Euro

USD/£

EUR/£

Source: Bank of England


The economy has created a record number of jobs in recent years, but productivity growth has remained weak ever since the crisis

11

85

90

95

100

105

110

2000Q1

2000Q4

2001Q3

2002Q2

2003Q1

2003Q4

2004Q3

2005Q2

2006Q1

2006Q4

2007Q3

2008Q2

2009Q1

2009Q4

2010Q3

2011Q2

2012Q1

2012Q4

2013Q3

2014Q2

2015Q1

2015Q4

2016Q3

2017Q2

2018Q1

2018Q4

Source: ONSProductivity (per worker) Employment

Index (2008 Q1 = 100) Employment

Productivity


In our main scenario, UK growth is projected to average 1.3-1.4% assuming an orderly Brexit, but risks are weighted to the downside

12

Rea

l G

DP

(%

ch

an

ge

, ye

ar

on

ye

ar)

-8%

-6%

-4%

-2%

0%

2%

4%

2007 Q1 2008 Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1 2018 Q1 2019 Q1 2020 Q1 2021 Q1

Main scenario Weak growth Strong growth

Projections

Source: ONS, PwC


Growth projected to be similar across most UK regions in 2019-20, with London no longer as dominate as in previous periods

13

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1.8%

South East Scotland SouthWest

EastMidlands

UK East London North West WestMidlands

Wales Yorks &Humber

North East N. Ireland

2019

2020

Source: PwC

Rea

l G

DP

(%

ch

an

ge

, ye

ar

on

ye

ar)


In our main scenario, inflation remains close to its 2% target, but much depends on the exchange rate and commodity prices

14

Alternative UK inflation (CPI) scenarios

% c

ha

nge

, ye

ar

on

ye

ar

Projections

0%

1%

2%

3%

4%

5%

2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1 2018 Q1 2019 Q1 2020 Q1

High inflation Main scenario Low inflation Inflation target

Source: ONS, PwC


Average earnings are now growing faster than prices and we expect this to continue in 2019-20 in our main scenario

15

CPI inflation vs. average earnings growth

% c

ha

nge

, ye

ar

on

ye

ar

0%

1%

2%

3%

4%

5%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Source: ONS, PwC

Prices (CPI) Average weekly earnings (excl bonus)

Prices (CPI)

Earnings

Projections


Summary: UK economic prospects and policy implications

16

1UK economic growth has slowed as

Brexit-related uncertainty has led to a

decline in business investment. But

consumer spending has held up

better so far.

4In our main scenario we assume a

single quarter-point interest rate rise

at some point in 2020 assuming an

orderly Brexit. But rates could be cut

again if there is a no deal Brexit.

2Assuming that a ‘no deal’ Brexit is

avoided, our main scenario is for UK

GDP growth to remain modest at

around 1.3%-1.4% on average in

2019-20.

5There are particularly large

uncertainties around UK economic

projections at present. A disorderly

Brexit could see the economy shrink,

despite some offset from likely

mitigating actions, and businesses

should prepare accordingly.

3Most industry sectors are projected to

see relatively slow growth in 2019,

though this is highly dependent on

the Brexit outcome. Manufacturing

and other export-intensive sectors

also face downside risks from any

further deceleration in global growth

in 2019-20.

UK housing market outlook: assessing the affordability of renting


0

20

40

60

80

100

16-24

25-34

35-44

45-54

55-64

65+ 16-24

25-34

35-44

45-54

55-64

65+ 16-24

25-34

35-44

45-54

55-64

65+ 16-24

25-34

35-44

45-54

55-64

65+

1998/99 2017/18

Owned outright Buying with a mortgage Social renting Private renting

Compared to the late 1990s, 25-34 year olds are more than twice as likely to rent privately, opening up an age gap in home ownership

18

Source: PwC analysis of ONS data

Pe

rcen

tage o

f h

ou

se

hold

s


London

SouthEast

EastSouth West

UK

Yorkshire and the Humber

Unaffordable

Affordable

£15,000

£20,000

£25,000

£30,000

£35,000

£40,000

£45,000

£15,000 £20,000 £25,000 £30,000 £35,000

Inco

me

requ

ire

d f

or

me

dia

n r

en

t to

be

'aff

ord

able

'

Median regional income

Rent represents a major share of income, and is unaffordable in much of the South of England using a 30% benchmark

19

Source: PwC analysis of ONS data for 2017/18


0% 10% 20% 30% 40% 50% 60%

London

South East

East

South West

United Kingdom

West Midlands

East Midlands

Scotland

North West

Wales

North East

Yorkshire and The Humber

Median rent as a proportion of median income for 22-29 year olds

In London, “generation rent” spend over half of their income (53%) on private rent

20

Source: PwC analysis of ONS data for 2018

30% affordability

threshold


Many key public service jobs do not offer the wages necessary for rents to be affordable, particularly in London and the South East

21

Source: PwC analysis of ONS data for 2018. Note that comparable data are not available for Northern Ireland.

Police officersSecondary school

teachersSocial workers Fire service officers

Primary & nursery

teachersNurses & midwives

Prison service

officers

Wales 15% 15% 18% N/A 16% 19% N/A

North East 14% 15% 20% 18% 18% 18% 19%

Scotland 15% 17% 17% 20% 18% 22% 15%

Yorkshire and The Humber 14% 18% 19% 17% 17% 19% 24%

North West 15% 17% 18% 19% 19% 21% 25%

West Midlands 17% 18% 20% 20% 22% 25% 24%

East Midlands 17% 18% 21% N/A 24% 23% 26%

South West 19% 21% 28% 25% 27% 29% N/A

East 20% 22% 26% 26% 26% 32% 30%

South East 23% 27% 30% 27% 33% 34% 33%

London 29% 33% 34% 36% 40% 39% 45%

Median rent as a proportion of median income


0

2

4

6

8

10

12

14

16

18

% o

f b

en

efit u

nits*

by h

ou

sin

g t

en

ure

Shared private renting in London

A lack of affordable housing has contributed to a sharp rise in shared living in London

22

Source: PwC analysis of ONS data*A benefit unit is defined as a single adult or a married and cohabiting couple and any dependent children


Summary: UK housing market outlook and policy implications

23

1Compared to the late 1990s, 25-34

year olds are more than twice as

likely to rent privately, while the

proportion of households aged 65+

owning their homes outright has

risen significantly.

4Many key public service jobs do not

offer sufficient wages for affordable

renting. This has implications for

social mobility and productivity

growth, and can lead to shortages of

key workers in high cost areas.

2For housing to be considered

affordable, it conventionally must cost

less than 30% of gross income.

London, the South East, the South

West and the East of England were

unaffordable on this basis in 2018.

5A lack of affordable housing seems

to be pushing many people into living

in shared or lower quality

accommodation. This may hold down

rents per person, suggesting that

standard affordability measures may

understate the scale of the problem.

3Members of “generation rent” in

London had to spend over half (53%)

of their income on private rent in

2018, while those in Yorkshire spent

just 22%.

Implications for government policy

and business

The government needs to press on

with efforts to increase the supply of

genuinely affordable housing to both

buy and rent. Employers can also

take action, for example by moving to

more affordable areas and/or

increasing wages in high cost areas.

How does UK labour market performance compare to other OECD countries?


The UK has achieved rapid jobs growth since 2012, with employment rates now at record high levels of over 75%

25

60

62

64

66

68

70

72

74

76

78

1862 1874 1886 1898 1910 1922 1934 1946 1958 1970 1982 1994 2006 2018

Em

plo

ym

en

t ra

te (

%, 1

6-6

4 y

ea

r-o

lds)

Source: ONS, Bank of England

PwC UK Economic Outlook 26

0

10

20

30

40

50

60

70

80

90

Em

plo

ym

en

t R

ate

(%

)However, when compared to the rest of the OECD, the UK’s performance is less impressive, ranking 13th out of 35 countries

Source: OECD


Iceland

JapanGermany

United Kingdom

Canada

United States

FranceItaly

Turkey

40

50

60

70

80

90

100

40 50 60 70 80 90 100

20

18

em

plo

ym

en

t ra

te (

%)

2007 employment rate (%)

Employment rate 2007 vs 2018

Most OECD countries have higher employment rates than pre-crisis, with Germany and Japan overtaking the UK since 2007

Source: PwC analysis of OECD data


0

10

20

30

40

50

60

70

80

90

100

2018 Golden Age Index scores

2018 2007 OECD 2018 Average

On our Golden Age Index, which looks at labour market conditions for those aged 55+, the UK is still slightly below the OECD average despite improvements since 2007


UK


0

10

20

30

40

50

60

70

80

2018 Youth Employment Index scores

2018 2007 2018 OECD Average

On our Youth Employment Index, which looks at employment and training for those under 25, the UK ranks 17th out of 35 countries despite recent improvements



Japan

United States

Germany

Canada

United Kingdom

France

Italy

0

10

20

30

40

50

60

70

80

30 40 50 60 70 80 90 100

20

18

YE

I S

co

re

2018 GAI Score

PwC Youth Employment Index (YEI) vs Golden Age Index (GAI) Comparison

There is a statistically significant positive correlation between YEI and GAI scores, dispelling the myth that encouraging older workers to remain in the workforce crowds out younger workers



0

10

20

30

40

50

60

70

80

90

2018 Labour Market Performance Index Scores

2018 2007 OECD 2018 Average

On our Labour Market Performance Index, which combines GAI, YEI and Women In Work index scores, the UK is around OECD average



Summary: UK labour market comparison and policy implications

32

1The UK’s employment rate is at a

record high of over 75%, but it still

ranks only towards the middle of the

OECD range, coming 13th out of 35

countries.

4The potential GDP boost for the UK

from improving labour market

performance to match that of

Sweden for women, younger and

older workers could be around12% of

GDP (around £250bn at 2018 values)

2The UK has improved its scores on

both PwC’s Youth Employment Index

and our Golden Age Index since 2007,

but is only performing at around the

OECD average level on these indices,

as other countries have also improved.

5Realising these potential gains will

require action to overcome age and

gender discrimination, boost

vocational training, help with

retraining older workers to adapt to

new technologies and further improve

childcare provision.

3On a new composite PwC Labour

Market Performance Index, combining

results from our Youth Employment,

Golden Age and Women in Work

indices, the UK is also close to the

OECD average, as most countries

have improved since 2007, just as the

UK has done. Iceland and Sweden are

the two top performers on this

combined index across the OECD.


Contacts for more information about this report

33

John Hawksworth

Chief Economist

[email protected]

Mike Jakeman

Senior Economist

[email protected]

Jamie Durham

Economist

[email protected]

Tilly Thomas

Economist

[email protected]

This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

© 2019 PricewaterhouseCoopers LLP. All rights reserved. PwC refers to the UK member firm, and may sometimes refer to the PwC network. Each member firm is a

separate legal entity. Please see www.pwc.com/structure for further details.

190318-204722-MJ-OS

pwc.co.uk/economics

Frederica Martin

Economist

[email protected]

For more information about our Economics services, or

to access the full report, please see our website at:

http://www.pwc.co.uk/economics

http://www.pwc.co.uk/ukeo

Documents

UK Economic Outlook€¦ · 2007 Q1 2008 Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1 2018 Q1 2019 Q1 2020 Q1 2021 Q1 Main scenario Weak growth Strong