Home Business NewsBusiness ICAEW reduces economic forecast due to sluggish growth

ICAEW reduces economic forecast due to sluggish growth

by LLB Reporter
15th Jun 18 8:59 am

Here’s why

The weak economic data for the first quarter of this year has led to ICAEW reducing its  Economic Forecast for GDP growth from 1.7 per cent to 1.3 per cent for 2018. With no progress being made in the future of the UK’s trade and investment relationship with Europe, UK plc continues to put business investment on hold.   

Growth in employment for 2018 is expected to be 0.9 per cent, 0.1 per cent lower than last year and 0.5 per cent in 2016. Pay is expected to increase by 2.5 per cent but with the number of spare workers reduced, businesses may need to raise pay faster than expected if they face problems recruiting or retaining the staff they need.

Michael Izza, ICAEW Chief Executive, said “The lack of progress on Brexit will continue to inhibit business investment and the increase in oil prices will but pressure on both households and companies. Both of these factors will impact on growth through the rest of 2018. The US, Australia, Germany and even Greece is expecting growth above 2 per cent and there is a danger that the UK’s sluggish growth will become acceptable at a time when other countries are gathering pace.”

The ICAEW Economic Forecast for Q2 2018 reveals:

  • UK economy set for weakest growth performance since 2009. The weakness of output in Q1 2018, and constraints to growth in the second half of the year, mean our forecast for GDP growth in 2018 is revised down from 1.7 per cent to 1.3 per cent this quarter. There may be an increasing role for exporters, where Business Confidence Monitor evidence suggests increasing optimism. But recent oil price volatility is likely to mean continued pressure on consumers.
  • Business investment remains on hold. A reduction in business investment was one of the drivers behind weaker GDP growth in Q1 2018, and we expect only a modest rebound through the rest of the year. However, with labour increasingly scarce businesses would need to increase investment by more than our forecast (1.3 per cent in 2018) to meet demand.
  • Wages may need to rise faster than expected. With employment forecast to grow 0.9 per cent in 2018, employers will be able to hire the workers they need, while containing wage growth at current rates (around 2.5 per cent). But businesses and policymakers are both raising concerns about the diminishing amount of spare capacity in the UK workforce, so companies may need to increase wages faster than expected to attract and retain workers.
  • Input price inflation continues to outstrip selling prices. Though the relative stability of sterling is helping cool the pace of import cost growth, businesses continue to face faster rises in input prices than normal. The gap between growth in input costs and selling prices will persist over the coming quarters, driving businesses to try and protect margins by controlling wage growth.

Michael Izza adds: “With the economy set for sluggish growth, Government now more than ever needs to make progress with the EU in helping to pave UK business success once Brexit takes place. Businesses are in an excellent position to take advantage of new opportunities but the lack of clarity and agreements made are a clear own goal.”

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