The performance of the UK economy in 2017 can be classed as decent, but unspectacular. Economic conditions will be challenging over the next three years too as uncertainty over Brexit still looms large and economic growth (GDP) is likely to slow over the next 12 months. But the low Sterling exchange rate combined with global economic growth, should help support the economy. Overall, we are not as pessimistic about economic growth as the official forecasts from The Office for Budget Responsibility (OBR).
The OBR downgraded their forecast for UK economic growth to remain below 2% until 2022, which seems overly pessimistic given the political impetus to stimulate growth over the next five years. But it’s the labour market that will set the tone for the economy in 2018.
The UK labour market has enjoyed five years of strong growth, but there are now signs of slowing. While we don’t expect unemployment to increase rapidly the capacity to increase employment much further has run out.
Productivity has been the major problem for the UK economy and despite the governments long term industrial strategy the outlook for growth is weak, especially as education and training policies will take time to deliver. But the latest productivity data shows a glimpse of sunshine among the clouds. Output per worker per hour rose 0.9% in Q3 2017 – the fastest rise for six years. Furthermore, wage growth should pick up from mid-2018 as higher inflation feeds into wage demands. Fewer workers should also help boost wages giving household finances some respite.