The FINANCIAL — UK growth to be more balanced across regions in 2019-20, with London no longer growing significantly faster than the UK average as it has for most of the past three decades
Real wages are expected to continue to pick up in 2019-20, but at rates below those seen before the global financial crisis as productivity growth remains relatively subdued
Consumer spending growth projected to slow to 1.4% this year due to Brexit uncertainty and cooling housing market, but could pick up to around 1.7% in 2020 with an orderly Brexit
PwC projects GDP growth of 1.1% in 2019, picking up to around 1.6% in 2020, assuming an orderly Brexit with a transition period
UK GDP growth could dip to 1.1% in 2019 before picking up to around 1.6% in 2020 according to PwC’s latest UK Economic Outlook report. The drag on business investment due to ongoing uncertainty about the outcome of Brexit is causing slower growth at present, but assuming an orderly exit from the EU followed by a transition period, investment and GDP growth should pick up later in 2019 and in 2020.
“Our main scenario for UK GDP growth in 2019 has been revised down from 1.6% to 1.1% since our last report in November, reflecting growing evidence of a negative drag on business investment as well as a less favourable global economic environment”, John Hawksworth, chief economist at PwC, comments.
“Recently, there have been signs from housing and labour markets that London’s performance relative to other regions has been less strong. We expect this to continue in 2019-20, with London growing only slightly faster than the UK average rate in those years.
“Brexit-related uncertainty is likely to dampen growth in all regions in 2019, but there could be some acceleration in growth across the UK in 2020 if an orderly Brexit can be achieved. In this scenario, the Bank of England could resume very gradual interest rate rises later in 2019 or in 2020, but it is unlikely to take any action until the fog of uncertainty has cleared.”
PwC main scenario projections for real output (GVA) growth by region
Consumer spending and household income prospects
Given the current strength of the labour market, PwC projects real household disposable income growth to pick up gradually in 2019 and 2020, reaching 2% in the latter year. Real wages are expected to continue to grow, but at rates below those seen before the global financial crisis as productivity growth remains relatively subdued.
PwC’s latest UK Economic Outlook report finds consumer spending growth is expected to moderate from 1.9% in 2018 to around 1.4% in 2019, as stronger real wage growth is offset by concerns about the implications of Brexit, slower projected jobs growth, the prospect of a gradual rise in interest rates in the medium term and subdued house price growth.
“Consumer spending has so far been remarkably resilient to political turmoil, but it has become sufficiently acute for us to expect more cautious spending trends in the first half of this year. If an orderly withdrawal from the EU can be achieved, however, spending growth should pick up in the second half of 2019 and in 2020,” Mike Jakeman, senior economist at PwC, comments.
PwC’s projections suggest that households will spend more than 30% of their budgets on housing and utilities by 2030, up from 27% in 2018. The share of spending on financial services and personal care is also likely to increase over time, while the share spent on necessities such as food and clothing will fall.
The proportion of purchases conducted online doubled for food, furnishing and clothing categories between 2010 and 2018. PwC’s projections suggest that the online share of total UK retail spending could rise between 2018 and 2030 from 5% to 8% for food, from 10% to 22% for furnishings and from 18% to 32% for clothing.