United Kingdom – Private consumption powering the UK economy.
UK growth remains resilient and whilst it is expected to slow down over the next two years according to the European Commission every latest forecast from them seems to show an improvement on their previous pessimism, with their Spring report now looking at 1.8 % yoy growth for 2017. Much of this growth can be put down to rising private consumption which rose by the highest level since before the banking crisis 10 years ago.
Real Household disposable income is forecast to fall in 2017 and 2018 as wage increases fail to keep pace with underlying inflation, caused by the rise in the cost of imported goods. Unemployment is also forecast to rise modestly, but it remains at a very low level which should not cause any significant financial pull on the economy. The low level of savings rates is expected to ease backwards a little further falling from 5.2 % in 2016 to just 3.8 % by 2018. Whilst these factors combine to negatively hit private consumption it is still seen as being the major driver of any GDP growth.
Looking at the business market the growth was more hit and miss as the services sector rose by 2.9 % whilst industrial production only went up by 1.2 %. Business investment is also unlikely to increase by anything significant over the next 18 months or so as businesses defer investments until there is some clarity over the Brexit trade negotiations.
Businesses are seeing some benefits from Brexit as the weaker pound is helping to boost exports with their contribution to GDP growth forecast to rise to 0.4pps. in 2017 and 0.5pps. in 2018.
European Automotive Report- 2017 Quarter 1 25