There is a lot of economic doom and gloom out there. The instability ignited by Brexit and exacerbated by an unclear General Election result, was further highlighted by the recent Autumn Budget statement.
Today we have released our Economic Forecast for Q4 2017. Predictably, this brings some depressing news, but there are also potential green shoots to take away.
A Lack of Productivity
Overall growth is expected to remain sluggish at 1.5% this year, rising to only 1.6% next year. Productivity is similarly disappointing, and will need to improve if we are to compete effectively post-Brexit.
Measures announced in the Autumn Budget, such as increased funding for the NPIF - with a greater focus on areas such as R&D and digital communications - may help to spur productivity growth, but what is needed most is for businesses to invest in their workforces. This will only happen once we get greater certainty on transition arrangements and an EU trade deal.
We are forecasting business investment to grow by only 2.1% this year, the second weakest annual figure since the financial crisis. Businesses are constraining their investments and building up their cash balances, rather than investing in the UK’s future. This in turn is constraining productivity.
A Hint of Hope
The current environment is understandably breeding a lot of negativity, so it is very easy to overlook some important improvements
Export sales should finally, over the next 12 months, begin to enjoy the fruits of the fall in sterling. Our recent Business Confidence Monitor suggested an increase in export growth for manufacturers next year, as input costs begin to ease. The wider economic benefits of export growth should not be underestimated.
We have also begun to see signs of some rebalancing in the economy, with debt as a proportion of GDP finally beginning to fall next year. We also believe that the private sector can continue to create jobs next year, albeit at a much slower rate.
A Cautious Note of Progress
It is important that where progress is made, it is highlighted. Sparks of confidence are still there, but need to be ignited further.
We face much the same challenge that we did six months ago; our economy needs Brexit clarity, and our businesses still need good reason to invest in technology, training and development.
Just this morning, we received the welcome news of a “breakthrough” in Brexit talks. If this can lead us towards wider progress, and swiftly, on a full transition deal and a longer-term trade deal, then just maybe the horizon will get a little brighter.