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Economic forecast remains sluggish, say ICAEW

Friday 14 September 2018, Following a weak start to 2018, the UK economy has seen a slight pick-up due to the weather and the World Cup. However, ICAEW predict GDP growth will remain un-changed at 1.3% for the year. As discussions with the EU are ongoing and the government prepares for the potential of a no-deal Brexit, businesses remain cautious of over spending on wage increases and job creation.

Business investment grew by just 0.5% on the quarter in Q2 2018 and evidence from the ICAEW Business Confidence Monitor (BCM)™ suggests  companies are expected to become even more cautious in coming months. One driving force behind the reluctance to invest is uncertainty surrounding the UK’s future relationship with Europe after withdrawing from the EU.

Michael Izza, ICAEW Chief Executive

“Brexit has been restricting business growth since the referendum in 2016, and with the potential of a no-deal exit, businesses don’t expect any comforting news in the immediate future. It is likely that these unpredictable factors will result in business investment growth remaining modest for the foreseeable future.”

  • GDP growth in 2018 forecast at a sluggish 1.3% but modest improvement expected in 2019. The economy gathered pace in Q2 2018 (growing by 0.4% on the quarter, in line with our BCM forecast, with domestic demand showing improvement. But monthly data suggest a cooling during the summer. ICAEW predicts GDP growth of 0.3% for Q3 2018, and 1.3% for the year overall. Easing inflation, which will help households, and a gradual strengthening in investment, should help growth to 1.5% in 2019 – still well below the pre-2016 average.
  • Only a slight pick-up in business investment in store for next year. Investment spending rebounded modestly in Q2 2018, but only offsetting the fall the previous quarter. Evidence from our BCM suggests companies remain cautious over investment in capital, Research & Development (R&D) and staff development. But fundamental financial conditions remain good, and we expect a modest acceleration in investment from 2018 (1% growth) into 2019 (2.3%).
  • Job creation starts to cool, and wages unlikely to accelerate substantially. Latest labour market data shows employment growth slowing, even as the unemployment rate fell to an historic low. However, the introduction of Universal Credit in Q2 has made interpreting labour market data around this period difficult. ICAEW forecasts a slowdown in employment growth to 0.5% in 2019 (half the pace of 2018), and a modest pickup in wage growth (to 2.9%, up 0.4 percentage points versus 2018).

“However, it is not all bad news. The fundamental economic and financial conditions for investment remain good and rates of return on investment remain very strong relative to recent years. Once negotiations come to a climax, whether it is a deal or no-deal Brexit, businesses will have more clarity on what to expect for the future.”

 

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Caroline Florence - ICAEW press office
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Email: Caroline.florence@icaew.com