The fundamentals of the UK economy are strong and pessimistic forecasts of an immediate recession following the Brexit vote have been proven very wrong.

The UK continues to have one of the lowest rates of unemployment in Europe, and big names such as Google, Facebook and Jaguar Land Rover have committed to creating new jobs in the country. For now, GDP data show key parts of the economy – consumer spending, business investments and exports – all expanding.

However, 2017 will be a year of uncertainty as rising inflation, driven by the weakness of sterling, pushes up business costs and the prices that households face in the shops. This squeeze on profits and consumer spending power is expected to contribute to a halving in economic growth from about 2% in 2016 to just 1% in 2017 – a huge loss of momentum.

What business needs for 2017 and beyond

The UK continues to have one of the lowest rates of unemployment in Europe, and big names such as Google, Facebook and Jaguar Land Rover have committed to creating new jobs in the country. For now, GDP data show key parts of the economy – consumer spending, business investments and exports – all expanding.

However, 2017 will be a year of uncertainty as rising inflation, driven by the weakness of sterling, pushes up business costs and the prices that households face in the shops. This squeeze on profits and consumer spending power is expected to contribute to a halving in economic growth from about 2% in 2016 to just 1% in 2017 – a huge loss of momentum.

Going global

There is significant potential for the UK economy to internationalise further and achieve solid export-driven growth over the coming years. Already, the depreciation in the pound seen since the referendum appears to be stimulating exports, as UK goods and services have become more price-competitive to overseas buyers. Brexit could serve as a catalyst for the UK economy to focus beyond Europe, building trading relations with faster-growing economies in the East, bringing a host of benefits.

Where next?

More still needs to be done to spread prosperity across the UK, with vast differences in employment and earnings prospects between regions. Economic growth remains heavily driven by London and the South East. As the Chancellor, Phillip Hammond, has acknowledged, in no other major developed country is the gap in economic activity between the capital and other cities so great. As such, plans to allocate £1.8bn from the Local Growth Fund to the English regions are welcome, as are plans to improve road and rail infrastructure in the North of England. These are steps in the right direction, but more can be done.

Scott Corfe
Head of Macroeconomics, Centre for Economic and Business Research

“Policymakers need to ensure that the UK has the right plans in place to lessen economic weakness and uncertainty.”

Scott Corfe, Head of Macroeconomics, Centre for Economic and Business Research

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