Knowledge & Insight

UK Economic Growth and Outlook

Tue 19 April 2016

The financial crash of 2007/08 led to an economic downturn like no other, which goes a long way to explaining why the subsequent recovery has been very different from any “normal” upturn in the business cycle. In short, the recovery has been, by historical standards, rather slow. Yet given the cocktail of challenges and uncertainties facing businesses, it is perhaps understandable.

Prospects for growth

In 2015 the UK economy grew by 2.2%. That’s down on the 3% growth in 2014, yet it still represents a strong performance relative to most Eurozone countries. The global outlook remains patchy, with long-term investment hindered by fluctuating oil prices and depressed commodities prices, held down by faltering growth in China and continued sluggish performance in the other BRIC economies.

General outlook

The short- to medium-term outlook for the UK differs markedly depending on which forecast you choose to read. Yet for an impartial yet well-informed view, a recent paper published by PwC provides some much-needed expert insight. In the paper, Andrew Sentance (PwC’s Senior Economics Advisor and former member of the Bank of England’s Monetary Policy Committee) claims that the UK economy is set to generate 3 million new jobs by 2025, chiefly in the service sector, with health and education to create over one million opportunities.

Employment

PwC forecast that strong jobs growth in the service sector will be partially off-set by a continued decline in manufacturing employment, with 600,000 jobs to be lost due to greater automation and increased competition from overseas. A further 150,000 jobs are likely to be shed in defence and public administration, as the austerity measures continue to bite deeper.

Productivity

The adoption of efficient working practices and the implementation of new technologies continues to improve productivity, yet the impact varies across different sectors. In business services, greater productivity has lowered costs and ultimately driven new growth in jobs. Yet in construction, productivity gains have failed to increase demand for labour, and in some sub-sectors, greater efficiency has actually led to a reduction in employment.

Downside risks

This overall positive outlook on jobs, coupled with low and stable interest rates, strong consumer demand and near-zero inflation, provides a good foundation for continued domestic growth. Yet a number of significant risks loom on the horizon. These dark clouds include the potential breakup of the European Union, persistent political instability in the Middle East, and further slowdown in China. Yet Sentance and PwC remain upbeat about the outlook for the UK, which is performing well despite the unsettled environment.

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