UK economy grew at weakest pace in five years in 2017, says new forecast

PwC predictions of 1.8 per cent calendar-year growth would mean smallest expansion since 1.5 per cent rise during 2012

Ben Chu
Economics Editor
Friday 12 January 2018 11:58
Growth has slowed over the last 12 months due to an increase in inflation stemming from Brexit
Growth has slowed over the last 12 months due to an increase in inflation stemming from Brexit

The UK economy grew at its weakest rate in five years in 2017, according to the latest forecast by PwC.

The accountancy and professional services firm said on Friday that its nowcasting model suggested GDP grew by 0.4 per cent in the final three months of the year.

This would take calendar year growth to 1.8 per cent, down from 1.9 per cent in 2016 and the weakest expansion since the 1.5 per cent growth seen in 2012, at the height of the eurozone crisis.

The UK economy has slowed over the past 12 months due to the increase in inflation stemming from the drop in the pound in the wake of the 2016 Brexit vote, which has squeezed household disposable incomes.

Business investment has also come in much weaker than expected, which surveys suggest is due to uncertainty among firms related to post-Brexit trade arrangements.

The UK slowdown comes as GDP growth in the eurozone and the US picks up strongly.

PwC’s forecast for the UK is notably weaker than the latest GDP estimate earlier this week from the National Institute for Economic and Social Research (Niesr), which estimated 0.6 per cent growth in the final quarter.

The average estimate of independent forecasters, collected by the Treasury in December, was that full year growth in 2017 would be just 1.6 per cent, although revisions and new hard data since then are likely to have prompted many to have made upward changes.

The Office for National Statistics will release its preliminary official estimate for Q4 2017 growth on 26 January.

PwC is also expecting growth in 2018 to fall further to 1.5 per cent, although this is a slight upgrade from the 1.4 per cent it previously expected.

The group says its nowcasting statistical model, when applied over the past six years, forecasts changes in the direction of UK GDP growth correctly 95 per cent of the time, with an average error of 0.15 percentage points.

“There is no infallible way to estimate current GDP growth, but our nowcasting model uses the latest machine learning techniques. This allows us to look at a very broad range of explanatory variables, ahead of official preliminary estimates, in order to estimate how fast the economy is growing,” said John Hawksworth, chief economist at PwC.

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