Wages and investment set to slow as businesses find little optimism in Autumn Statement, says ICAEW
Friday 9 December 2016, Philip Hammond will hope that his first, and last, Autumn Statement has installed some confidence into the economy, as businesses investment is set to fall yet again by 3.2% in 2016 and 3.6% in 2017.
Businesses are waiting to gather a clearer picture on what a post-Brexit trading environment will look like, therefore employment and wage growth is set to slow and this could have a significant impact on consumers’ purchasing power.
- ICAEW’s forecast for economic growth in 2016 has been modestly upgraded from 1.8% to 2%. We have upgraded our forecast for 2017 from 1.1% to 1.2%. These revisions reflect a stronger-than-expected third quarter of 2016. However, the underlying outlook for the economy has changed little: businesses are waiting for more certainty over the new post-Brexit trading environment before investing; employment and wage growth is slower as a result; and consumers face falling real purchasing power. There should be some modest boost to net exports from a weaker pound.
- Business investment is forecast to fall by 1.3% in 2016, and a further 2.4% in 2017. This is compared to average growth of 5% per annum from 2010-2015 The Business Confidence Monitor demonstrates that business confidence improved only very marginally in Q4 following the Brexit-induced slump in Q3. Firms will make cuts to their capital expenditure in the year ahead, in spite of a surprising pickup in capital spending in the immediate post-Brexit period.
- The labour market will stall, with private sector headcount flat and some upturn in unemployment through 2017. ICAEW expects private sector employment growth to slow from a surprisingly firm 1.6% in 2016 to just 0.2% in 2017. The unemployment rate, currently at 4.8%, is expected to average 5.1% for 2017 as a whole.
- Wage growth is likely to slow beneath inflation for the first time since 2013. ICAEW’s forecast for wage growth is 2% in 2017, down from 2.2% in 2016, and substantially weaker than most forecasters’ expectations for price growth. The increase in the National Living Wage in April will deliver gains for some workers, while the increase in the personal allowance will offer a modest income boost.
Stephen Ibbotson, ICAEW Director of Business, said:
“The Chancellor’s Autumn Statement was something of a missed opportunity, with no solid stimulus announced to drive economic growth in spite of a loosening of the fiscal rules. There were a number of more minor measures intended to benefit households and businesses, which will have limited impact.”
“The story of Marmite and PG Tips is just the beginning – retailers will be hit in 2017 and consumers will lose purchasing power as a result. Many households will be squeezed in 2017 due to a combination of inflation and sluggish wage growth. Obviously money doesn’t grow on trees but it does grow faster in a business environment filled with certainty, so the Government needs to offer businesses incentives that will restore business confidence.”
Please direct all media inquiries related to this article to:
Caroline Florence - ICAEW press office
Tel: +44 (0) 207 920 8564