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UK Economic Outlook March 2017 www.pwc.co.uk/economics
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Page 1: UK Economic Outlook · PDF filePwC Global outlook UK economic trends and prospects Consumer spending prospects after Brexit Will robots steal our jobs? Contents 1 2 3 4 2 UK Economic

UK Economic Outlook

March 2017

www.pwc.co.uk/economics

Page 2: UK Economic Outlook · PDF filePwC Global outlook UK economic trends and prospects Consumer spending prospects after Brexit Will robots steal our jobs? Contents 1 2 3 4 2 UK Economic

PwC

Global outlook

UK economic trends and prospects

Consumer spending prospects after Brexit

Will robots steal our jobs?

Contents

1

2

3

4

2

March 2017UK Economic Outlook

Page 3: UK Economic Outlook · PDF filePwC Global outlook UK economic trends and prospects Consumer spending prospects after Brexit Will robots steal our jobs? Contents 1 2 3 4 2 UK Economic

PwC

Global growth in 2017 should be slightly stronger than in 2016

Source: PwC main scenario

Russia

Germany

UK

US

Brazil

India

Spain

Key

Canada

Mexico

South Africa

Australia

Japan

Italy

Greece

Ireland

France

1.9

2.2

1.8

0.4

2.3

1.4

3.2

1.6

1.6

1

1.0

7.3

1.6

2.7

6.5

0.5

1.0

x.x = GDP growth in 2017

China

Global (MER) 2.9

Global (PPP) 3.4

Eurozone 1.6

3

March 2017UK Economic Outlook

Page 4: UK Economic Outlook · PDF filePwC Global outlook UK economic trends and prospects Consumer spending prospects after Brexit Will robots steal our jobs? Contents 1 2 3 4 2 UK Economic

PwC

UK economic trends and prospects

4

March 2017UK Economic Outlook

Page 5: UK Economic Outlook · PDF filePwC Global outlook UK economic trends and prospects Consumer spending prospects after Brexit Will robots steal our jobs? Contents 1 2 3 4 2 UK Economic

PwC

Growth in UK services remains relatively strong, but manufacturing has slowed and construction remains volatile

Source: ONS

70

75

80

85

90

95

100

105

110

115

120

2007 Q3 2008 Q3 2009 Q3 2010 Q3 2011 Q3 2012 Q3 2013 Q3 2014 Q3 2015 Q3 2016 Q3

Index (Q1 2007 = 100)

Sectoral output and GDP trends

Services GDP Manufacturing Construction

Services

GDP

Manufacturing

Construction

5

March 2017UK Economic Outlook

Page 6: UK Economic Outlook · PDF filePwC Global outlook UK economic trends and prospects Consumer spending prospects after Brexit Will robots steal our jobs? Contents 1 2 3 4 2 UK Economic

PwC

Strong post Brexit recoveries in the services and manufacturing sectors have tailored off in early 2017

Source: Markit/CIPS

30

35

40

45

50

55

60

65

2007 JAN 2008 JAN 2009 JAN 2010 JAN 2011 JAN 2012 JAN 2013 JAN 2014 JAN 2015 JAN 2016 JAN 2017 JAN

Purchasing Managers’ Indices of business activity

Services Manufacturing

Above 50

indicates

rising

activity

levels

Services

ManufacturingDownward blip after Brexit vote

6

March 2017UK Economic Outlook

Page 7: UK Economic Outlook · PDF filePwC Global outlook UK economic trends and prospects Consumer spending prospects after Brexit Will robots steal our jobs? Contents 1 2 3 4 2 UK Economic

PwC

PwC’s regular survey shows the rise in consumer confidence stalling following its post Brexit recovery

Source: PwC Consumer Survey

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

APR2008

AUG2008

NOV2008

MAY2009

JAN2010

JUL2010

DEC2010

MAY2011

DEC2011

SEPT2012

MAY2013

JAN2014

NOV2014

APR2015

NOV2015

MAR2016

SEP2016

Balance of opinion

7

March 2017UK Economic Outlook

Page 8: UK Economic Outlook · PDF filePwC Global outlook UK economic trends and prospects Consumer spending prospects after Brexit Will robots steal our jobs? Contents 1 2 3 4 2 UK Economic

PwC

Concerns about Brexit have left sterling weak against the dollar and euro, pushing up UK import prices

Source: Bank of England

1.000

1.100

1.200

1.300

1.400

1.500

1.600

2016JAN

2016FEB

2016MAR

2016APR

2016MAY

2016JUN

2016JUL

2016AUG

2016SEP

2016SEP

2016OCT

2016NOV

2016DEC

2017NOV

2017MAR

US dollar and euro exchange rates against the pound

US Dollar Euro

USD/£

EUR/£

EU referendum

8

March 2017UK Economic Outlook

Page 9: UK Economic Outlook · PDF filePwC Global outlook UK economic trends and prospects Consumer spending prospects after Brexit Will robots steal our jobs? Contents 1 2 3 4 2 UK Economic

PwC

UK growth is likely to ease in 2017-18 due to business uncertainty and slowing consumer spending growth

Source: ONS, PwC scenarios

-8%

-6%

-4%

-2%

0%

2%

4%

2007 Q1 2008 Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1 2018 Q1

Alternative UK GDP growth scenarios Projections

Strong growth

Main scenario

Mild recession

9

March 2017UK Economic Outlook

Page 10: UK Economic Outlook · PDF filePwC Global outlook UK economic trends and prospects Consumer spending prospects after Brexit Will robots steal our jobs? Contents 1 2 3 4 2 UK Economic

PwC

London is expected to remain the fastest growing region, though all regions are projected to have positive growth

Source: PwC analysis

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

PwC main scenario for output growth by region in 2017 and 2018

2017

2018

10

March 2017UK Economic Outlook

Page 11: UK Economic Outlook · PDF filePwC Global outlook UK economic trends and prospects Consumer spending prospects after Brexit Will robots steal our jobs? Contents 1 2 3 4 2 UK Economic

PwC

The persistent weakness of the pound is expected to push UK inflation above target later this year

High

inflation

Main

scenario

Low

inflation

Source: ONS, PwC scenarios

0%

1%

2%

3%

4%

5%

2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1 2018 Q1

% change on a year earlier

Alternative UK inflation (CPI) scenarios

High inflation Main scenario Low inflation Inflation target

Inflation target = 2%

Projections

11

March 2017UK Economic Outlook

Page 12: UK Economic Outlook · PDF filePwC Global outlook UK economic trends and prospects Consumer spending prospects after Brexit Will robots steal our jobs? Contents 1 2 3 4 2 UK Economic

PwC

Real earnings growth is projected to be around zero in 2018 as inflation picks up and nominal earnings growth slows

Source: ONS, PwC analysis

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

% change p.a.

CPI inflation vs average earnings growth

CPI Average weekly earnings (excl bonus)

CPI

Earnings

Projections

Real squeeze

12

March 2017UK Economic Outlook

Page 13: UK Economic Outlook · PDF filePwC Global outlook UK economic trends and prospects Consumer spending prospects after Brexit Will robots steal our jobs? Contents 1 2 3 4 2 UK Economic

PwC

Summary: UK economic trends and prospects

3 The pound has fallen significantly since the Brexit vote, which will push up import prices and squeeze real household spending power in 2017-18 as inflation rises above its 2% target.

1 UK economic growth has held steady at around 2% in the year to Q4 2016 with no immediate deceleration after the “Brexit” vote.

2

In our main scenario, we project UK growth to decelerate from 1.8% in 2016 to around 1.6% in 2017 and 1.4% in 2018, driven primarily by subdued business investment and moderating consumer spending. But a recession is unlikely in 2017-18 unless there are wider global economic shocks beyond Brexit.

4We project that London will remain the fastest growing region in 2017-18, despite its pace of growth falling significantly since 2015. Other regions will also see more modest growth in 2017 and 2018, but none should fall into recession.

13

March 2017UK Economic Outlook

Page 14: UK Economic Outlook · PDF filePwC Global outlook UK economic trends and prospects Consumer spending prospects after Brexit Will robots steal our jobs? Contents 1 2 3 4 2 UK Economic

PwC

Consumer spending prospects after Brexit

14

March 2017UK Economic Outlook

Page 15: UK Economic Outlook · PDF filePwC Global outlook UK economic trends and prospects Consumer spending prospects after Brexit Will robots steal our jobs? Contents 1 2 3 4 2 UK Economic

PwC

UK household savings ratio in steady decline since 2010, boosting consumer spending, but this can’t continue forever

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

2001Q1

2002Q1

2003Q1

2004Q1

2005Q1

2006Q1

2007Q1

2008Q1

2009Q1

2010Q1

2011Q1

2012Q1

2013Q1

2014Q1

2015Q1

2016Q1

Perc

ent

Savings ratio (% of household resources) Adjusted savings ratio (% of gross household income)

Historical trends in official and adjusted UK household saving ratios

Source: ONS, PwC analysis

15

March 2017UK Economic Outlook

Page 16: UK Economic Outlook · PDF filePwC Global outlook UK economic trends and prospects Consumer spending prospects after Brexit Will robots steal our jobs? Contents 1 2 3 4 2 UK Economic

PwC

We expect consumer spending growth to moderate in 2017 and 2018 as higher inflation squeezes real spending power

0

0.5

1

1.5

2

2.5

3

3.5

2015 2016 2017 2018

Real consumer spending growth (%)

Source: ONS, PwC main scenario for 2017-18

16

March 2017UK Economic Outlook

Page 17: UK Economic Outlook · PDF filePwC Global outlook UK economic trends and prospects Consumer spending prospects after Brexit Will robots steal our jobs? Contents 1 2 3 4 2 UK Economic

PwC

Looking further ahead, we project spending on housing and utilities to rise to almost 30% of total spending by 2030 as housing shortages continue

Source: ONS historic, PwC projections

17

March 2017UK Economic Outlook

Page 18: UK Economic Outlook · PDF filePwC Global outlook UK economic trends and prospects Consumer spending prospects after Brexit Will robots steal our jobs? Contents 1 2 3 4 2 UK Economic

PwC

Import-intensive clothing and food industries likely to be significant losers from Brexit-related weakness of pound

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Imp

ort

inte

nsity (

% o

f h

ou

seh

old

co

nsu

mp

tio

n)

Household consumption import intensities

Source: ONS, PwC analysis

18

March 2017UK Economic Outlook

Page 19: UK Economic Outlook · PDF filePwC Global outlook UK economic trends and prospects Consumer spending prospects after Brexit Will robots steal our jobs? Contents 1 2 3 4 2 UK Economic

PwC

Retail, hotel and restaurant sectors could be particularly vulnerable to any significant reductions in EU migration

0%

2%

4%

6%

8%

10%

12%

Distribution, hotels &restaurants

Manufacturing Construction Public admin, education &health

Work

ers

with o

vers

eas n

ationalit

y a

s a

pro

port

ion o

f to

tal U

K

work

forc

e

EU14 A10 ROW

Foreign nationals as a proportion of the UK workforce

Source: ONS, PwC analysis

19

March 2017UK Economic Outlook

Page 20: UK Economic Outlook · PDF filePwC Global outlook UK economic trends and prospects Consumer spending prospects after Brexit Will robots steal our jobs? Contents 1 2 3 4 2 UK Economic

PwC

Summary: Consumer spending trends after Brexit

4The retail, hotel and restaurant sectors are most sensitive to changes in the number of EU nationals permitted to work in the UK, although these impacts could be offset in part if there was any relaxation in limits on non-EU migration (but not current government policy).

2We project the spending share of housing and utilities to rise to 29% by 2030 as housing supply continues to be restricted relative to demand. Spending shares of essentials such as food and clothing are expected to decline as incomes rise, whilst the spending shares of luxury items such as restaurants increases in the long term.

1

Adjusted saving ratio has declined steadily since 2010, which has helped support a strong recovery in consumer spending since 2012 that has continued since the Brexit vote. But we expect spending growth to slow from around 3% in 2016 to around 2% in 2017 and around 1.7% in 2018 as higher inflation squeezes real household spending power.

3The food and clothing industries are most vulnerable to the short term impact of Brexit as the weaker exchange rate increases costs in these import intensive industries. But UK inbound tourism has already gained from a weaker pound.

20

March 2017UK Economic Outlook

Page 21: UK Economic Outlook · PDF filePwC Global outlook UK economic trends and prospects Consumer spending prospects after Brexit Will robots steal our jobs? Contents 1 2 3 4 2 UK Economic

PwC

Will robots steal our jobs?

21

March 2017UK Economic Outlook

Page 22: UK Economic Outlook · PDF filePwC Global outlook UK economic trends and prospects Consumer spending prospects after Brexit Will robots steal our jobs? Contents 1 2 3 4 2 UK Economic

PwC

We found that around 30% of jobs in the UK are at potential high risk of automation and around 38% in the US – lower than Frey and Osborne, but higher than 2016 OECD study

30%

38%35%

47%

10% 9%

0%

10%

20%

30%

40%

50%

UK USPo

ten

tia

l jo

bs

at

hig

h r

isk

of

au

tom

ati

on

(%

)

PwC FO AGZ

What proportion of jobs are potentially at high risk of automation by early 2030s?

Sources: PwC analysis; Frey and Osborne (‘FO’, 2013), Arntz, Gregory and Zierahn (‘AGZ’, OECD, 2016)

22

March 2017UK Economic Outlook

Page 23: UK Economic Outlook · PDF filePwC Global outlook UK economic trends and prospects Consumer spending prospects after Brexit Will robots steal our jobs? Contents 1 2 3 4 2 UK Economic

PwC

Compared to the UK, the US and Germany have an increased potential risk of job automation, Japan has a lower risk

Proportion of jobs at potential high risk of automation by country by early 2030s

30%

38%35%

21%

0%

10%

20%

30%

40%

50%

UK US Germany JapanPo

ten

tia

l jo

bs

at

hig

h r

isk

of

au

tom

ati

on

(%

)

Sources: ONS; PIAAC data; PwC analysis (based on estimated technical feasibility)

23

March 2017UK Economic Outlook

Page 24: UK Economic Outlook · PDF filePwC Global outlook UK economic trends and prospects Consumer spending prospects after Brexit Will robots steal our jobs? Contents 1 2 3 4 2 UK Economic

PwC

Several million jobs could potentially be at risk of automation in the UK by early 2030s, but this will be a gradual process with offsetting job gains elsewhere

Potential jobs at high risk of automation by UK industry sector

Sources: ONS; PIAAC data; PwC analysis

0m 2m 4m 6m 8m 10m 12m

Total UK job automation

Wholesale and retail trade

Manufacturing

Administrative and support service

Transportation and storage

Professional, scientific and technical

Human health and social work

Accommodation and food service

Construction

Public administration and defence

Information and communication

Financial and insurance

Education

Other

UK jobs at high risk of automation (millions)

24

March 2017UK Economic Outlook

Page 25: UK Economic Outlook · PDF filePwC Global outlook UK economic trends and prospects Consumer spending prospects after Brexit Will robots steal our jobs? Contents 1 2 3 4 2 UK Economic

PwC

The sector with the highest proportion of jobs at potential risk of automation by early 2030s is transport and storage, while health and education are relatively lower risk

Potential impact of job automation by UK industry sector by early 2030s

Sources: ONS; PIAAC data; PwC analysis

Wholesale and retail tradeManufacturing

Administrative and support service

Transportation and storage

Professional, scientific and technical

Human health and social work

Accommodation and food service

Construction

Public administration and defence

Information and communication

Financial and insurance

Education

0%

10%

20%

30%

40%

50%

60%

70%

0% 5% 10% 15% 20%Employment share by sector (%)

Po

ten

tia

l jo

bs

at

hig

h r

isk

of

au

tom

ati

on

by

sec

tor

(%)

25

March 2017UK Economic Outlook

Page 26: UK Economic Outlook · PDF filePwC Global outlook UK economic trends and prospects Consumer spending prospects after Brexit Will robots steal our jobs? Contents 1 2 3 4 2 UK Economic

PwC

One of the main drivers of a job being at potential higher risk of automation is the composition of tasks conducted, although required education levels are also important

Task composition for UK employees for example industry sectors

Sources: PIAAC data; PwC analysis

22%

38%7%

20%

11%

2%

Transportation and storage

20%

33%13%

19%

12%

2%

Manufacturing

11%

27%

12%22%

22%

6%

Education

143%

127%

59%

87%

68%

51%

Manual tasks

Routine tasks

Computation

Management

Social skills

Literacy skills

0% 100% 200%

Compared to UK average (%)

131%

110%

108%

81%

80%

64%

Manual tasks

Routine tasks

Computation

Management

Social skills

Literacy skills

0% 100% 200%

Compared to UK average (%)

69%

90%

96%

94%

144%

179%

Manual tasks

Routine tasks

Computation

Management

Social skills

Literacy skills

0% 100% 200%

Compared to UK average (%)

26

March 2017UK Economic Outlook

Page 27: UK Economic Outlook · PDF filePwC Global outlook UK economic trends and prospects Consumer spending prospects after Brexit Will robots steal our jobs? Contents 1 2 3 4 2 UK Economic

PwC

Some important caveats

• Estimates based on technical feasibility, ignoring economic, legal and regulatory constraints

• Little sign yet of jobs impact from automation in UK – employment rate at record high and no significant change expected in short term

• Might change if robots/AI get much cheaper and labour costs rise

• But could take many decades for robotics/AI to reach full potential:

organisational inertia/legacy systems

economic, political, legal and regulatory barriers

• Automation should also boost productivity significantly and, as the extra wealth this generates is spent/invested, this should feed through into additional jobs in less automatable sectors

• But there could be significant labour market disruption in the process, and possibly also a further rise in income/wealth inequality

27

March 2017UK Economic Outlook

Page 28: UK Economic Outlook · PDF filePwC Global outlook UK economic trends and prospects Consumer spending prospects after Brexit Will robots steal our jobs? Contents 1 2 3 4 2 UK Economic

PwC

Summary: will robots steal our jobs?

1Up to around 30% of UK jobs could potentially be at high risk of automation by the early 2030s, lower than the US (38%) or Germany (35%), but higher than Japan (21%).

2

The risks of automation by the early 2030s appear highest in sectors such as:• transport and storage (56%)• manufacturing (46%)• wholesale and retail trade (44%)But lower in sectors like health and education where social skills are important

3For individual workers, the key differentiating factor is education. For those with just GCSE-level education or lower, estimated potential risk of automation by early 2030s is 46%, compared to only 12% for university graduates

4In practice, not all of these jobs will actually be automated for a variety of economic, legal and regulatory reasons. Furthermore, new ‘smart automation’ technologies will boost productivity and wealth – as this wealth is spent, it will create additional jobs in hard to automate sectors.

28

March 2017UK Economic Outlook

Page 29: UK Economic Outlook · PDF filePwC Global outlook UK economic trends and prospects Consumer spending prospects after Brexit Will robots steal our jobs? Contents 1 2 3 4 2 UK Economic

Contacts for more information about this report

John Hawksworth (chief economist) - [email protected] / 0207 213 1650

Barret Kupelian (senior economist) - [email protected] / 0207 213 1579

Richard Berriman (data analytics) – [email protected] / 0784 178 7432

Duncan Mckellar (economist) – [email protected] / o787 281 5650

For more information on our Economics services or to access the full report, please see our website at:

http://www.pwc.co.uk/economics

http://www.pwc.co.uk/ukeo

This publication has been prepared for general guidance on matters of interest only, and does

not constitute professional advice. You should not act upon the information contained in this

publication without obtaining specific professional advice. No representation or warranty

(express or implied) is given as to the accuracy or completeness of the information contained

in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its

members, employees and agents do not accept or assume any liability, responsibility or duty of

care for any consequences of you or anyone else acting, or refraining to act, in reliance on the

information contained in this publication or for any decision based on it.

© 2017 PricewaterhouseCoopers LLP. All rights reserved. In this document, "PwC" refers to

the UK member firm, and may sometimes refer to the PwC network. Each member firm is a

separate legal entity. Please see www.pwc.com/structure for further details.


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