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UK Economic Outlook
March 2017
www.pwc.co.uk/economics
PwC
Global outlook
UK economic trends and prospects
Consumer spending prospects after Brexit
Will robots steal our jobs?
Contents
1
2
3
4
2
March 2017UK Economic Outlook
PwC
Global growth in 2017 should be slightly stronger than in 2016
Source: PwC main scenario
Russia
Germany
UK
US
Brazil
India
Spain
Key
Canada
Mexico
South Africa
Australia
Japan
Italy
Greece
Ireland
France
1.9
2.2
1.8
0.4
2.3
1.4
3.2
1.6
1.6
1
1.0
7.3
1.6
2.7
6.5
0.5
1.0
x.x = GDP growth in 2017
China
Global (MER) 2.9
Global (PPP) 3.4
Eurozone 1.6
3
March 2017UK Economic Outlook
PwC
UK economic trends and prospects
4
March 2017UK Economic Outlook
PwC
Growth in UK services remains relatively strong, but manufacturing has slowed and construction remains volatile
Source: ONS
70
75
80
85
90
95
100
105
110
115
120
2007 Q3 2008 Q3 2009 Q3 2010 Q3 2011 Q3 2012 Q3 2013 Q3 2014 Q3 2015 Q3 2016 Q3
Index (Q1 2007 = 100)
Sectoral output and GDP trends
Services GDP Manufacturing Construction
Services
GDP
Manufacturing
Construction
5
March 2017UK Economic Outlook
PwC
Strong post Brexit recoveries in the services and manufacturing sectors have tailored off in early 2017
Source: Markit/CIPS
30
35
40
45
50
55
60
65
2007 JAN 2008 JAN 2009 JAN 2010 JAN 2011 JAN 2012 JAN 2013 JAN 2014 JAN 2015 JAN 2016 JAN 2017 JAN
Purchasing Managers’ Indices of business activity
Services Manufacturing
Above 50
indicates
rising
activity
levels
Services
ManufacturingDownward blip after Brexit vote
6
March 2017UK Economic Outlook
PwC
PwC’s regular survey shows the rise in consumer confidence stalling following its post Brexit recovery
Source: PwC Consumer Survey
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
APR2008
AUG2008
NOV2008
MAY2009
JAN2010
JUL2010
DEC2010
MAY2011
DEC2011
SEPT2012
MAY2013
JAN2014
NOV2014
APR2015
NOV2015
MAR2016
SEP2016
Balance of opinion
7
March 2017UK Economic Outlook
PwC
Concerns about Brexit have left sterling weak against the dollar and euro, pushing up UK import prices
Source: Bank of England
1.000
1.100
1.200
1.300
1.400
1.500
1.600
2016JAN
2016FEB
2016MAR
2016APR
2016MAY
2016JUN
2016JUL
2016AUG
2016SEP
2016SEP
2016OCT
2016NOV
2016DEC
2017NOV
2017MAR
US dollar and euro exchange rates against the pound
US Dollar Euro
USD/£
EUR/£
EU referendum
8
March 2017UK Economic Outlook
PwC
UK growth is likely to ease in 2017-18 due to business uncertainty and slowing consumer spending growth
Source: ONS, PwC scenarios
-8%
-6%
-4%
-2%
0%
2%
4%
2007 Q1 2008 Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1 2018 Q1
Alternative UK GDP growth scenarios Projections
Strong growth
Main scenario
Mild recession
9
March 2017UK Economic Outlook
PwC
London is expected to remain the fastest growing region, though all regions are projected to have positive growth
Source: PwC analysis
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
PwC main scenario for output growth by region in 2017 and 2018
2017
2018
10
March 2017UK Economic Outlook
PwC
The persistent weakness of the pound is expected to push UK inflation above target later this year
High
inflation
Main
scenario
Low
inflation
Source: ONS, PwC scenarios
0%
1%
2%
3%
4%
5%
2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1 2018 Q1
% change on a year earlier
Alternative UK inflation (CPI) scenarios
High inflation Main scenario Low inflation Inflation target
Inflation target = 2%
Projections
11
March 2017UK Economic Outlook
PwC
Real earnings growth is projected to be around zero in 2018 as inflation picks up and nominal earnings growth slows
Source: ONS, PwC analysis
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
% change p.a.
CPI inflation vs average earnings growth
CPI Average weekly earnings (excl bonus)
CPI
Earnings
Projections
Real squeeze
12
March 2017UK Economic Outlook
PwC
Summary: UK economic trends and prospects
3 The pound has fallen significantly since the Brexit vote, which will push up import prices and squeeze real household spending power in 2017-18 as inflation rises above its 2% target.
1 UK economic growth has held steady at around 2% in the year to Q4 2016 with no immediate deceleration after the “Brexit” vote.
2
In our main scenario, we project UK growth to decelerate from 1.8% in 2016 to around 1.6% in 2017 and 1.4% in 2018, driven primarily by subdued business investment and moderating consumer spending. But a recession is unlikely in 2017-18 unless there are wider global economic shocks beyond Brexit.
4We project that London will remain the fastest growing region in 2017-18, despite its pace of growth falling significantly since 2015. Other regions will also see more modest growth in 2017 and 2018, but none should fall into recession.
13
March 2017UK Economic Outlook
PwC
Consumer spending prospects after Brexit
14
March 2017UK Economic Outlook
PwC
UK household savings ratio in steady decline since 2010, boosting consumer spending, but this can’t continue forever
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
2001Q1
2002Q1
2003Q1
2004Q1
2005Q1
2006Q1
2007Q1
2008Q1
2009Q1
2010Q1
2011Q1
2012Q1
2013Q1
2014Q1
2015Q1
2016Q1
Perc
ent
Savings ratio (% of household resources) Adjusted savings ratio (% of gross household income)
Historical trends in official and adjusted UK household saving ratios
Source: ONS, PwC analysis
15
March 2017UK Economic Outlook
PwC
We expect consumer spending growth to moderate in 2017 and 2018 as higher inflation squeezes real spending power
0
0.5
1
1.5
2
2.5
3
3.5
2015 2016 2017 2018
Real consumer spending growth (%)
Source: ONS, PwC main scenario for 2017-18
16
March 2017UK Economic Outlook
PwC
Looking further ahead, we project spending on housing and utilities to rise to almost 30% of total spending by 2030 as housing shortages continue
Source: ONS historic, PwC projections
17
March 2017UK Economic Outlook
PwC
Import-intensive clothing and food industries likely to be significant losers from Brexit-related weakness of pound
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Imp
ort
inte
nsity (
% o
f h
ou
seh
old
co
nsu
mp
tio
n)
Household consumption import intensities
Source: ONS, PwC analysis
18
March 2017UK Economic Outlook
PwC
Retail, hotel and restaurant sectors could be particularly vulnerable to any significant reductions in EU migration
0%
2%
4%
6%
8%
10%
12%
Distribution, hotels &restaurants
Manufacturing Construction Public admin, education &health
Work
ers
with o
vers
eas n
ationalit
y a
s a
pro
port
ion o
f to
tal U
K
work
forc
e
EU14 A10 ROW
Foreign nationals as a proportion of the UK workforce
Source: ONS, PwC analysis
19
March 2017UK Economic Outlook
PwC
Summary: Consumer spending trends after Brexit
4The retail, hotel and restaurant sectors are most sensitive to changes in the number of EU nationals permitted to work in the UK, although these impacts could be offset in part if there was any relaxation in limits on non-EU migration (but not current government policy).
2We project the spending share of housing and utilities to rise to 29% by 2030 as housing supply continues to be restricted relative to demand. Spending shares of essentials such as food and clothing are expected to decline as incomes rise, whilst the spending shares of luxury items such as restaurants increases in the long term.
1
Adjusted saving ratio has declined steadily since 2010, which has helped support a strong recovery in consumer spending since 2012 that has continued since the Brexit vote. But we expect spending growth to slow from around 3% in 2016 to around 2% in 2017 and around 1.7% in 2018 as higher inflation squeezes real household spending power.
3The food and clothing industries are most vulnerable to the short term impact of Brexit as the weaker exchange rate increases costs in these import intensive industries. But UK inbound tourism has already gained from a weaker pound.
20
March 2017UK Economic Outlook
PwC
Will robots steal our jobs?
21
March 2017UK Economic Outlook
PwC
We found that around 30% of jobs in the UK are at potential high risk of automation and around 38% in the US – lower than Frey and Osborne, but higher than 2016 OECD study
30%
38%35%
47%
10% 9%
0%
10%
20%
30%
40%
50%
UK USPo
ten
tia
l jo
bs
at
hig
h r
isk
of
au
tom
ati
on
(%
)
PwC FO AGZ
What proportion of jobs are potentially at high risk of automation by early 2030s?
Sources: PwC analysis; Frey and Osborne (‘FO’, 2013), Arntz, Gregory and Zierahn (‘AGZ’, OECD, 2016)
22
March 2017UK Economic Outlook
PwC
Compared to the UK, the US and Germany have an increased potential risk of job automation, Japan has a lower risk
Proportion of jobs at potential high risk of automation by country by early 2030s
30%
38%35%
21%
0%
10%
20%
30%
40%
50%
UK US Germany JapanPo
ten
tia
l jo
bs
at
hig
h r
isk
of
au
tom
ati
on
(%
)
Sources: ONS; PIAAC data; PwC analysis (based on estimated technical feasibility)
23
March 2017UK Economic Outlook
PwC
Several million jobs could potentially be at risk of automation in the UK by early 2030s, but this will be a gradual process with offsetting job gains elsewhere
Potential jobs at high risk of automation by UK industry sector
Sources: ONS; PIAAC data; PwC analysis
0m 2m 4m 6m 8m 10m 12m
Total UK job automation
Wholesale and retail trade
Manufacturing
Administrative and support service
Transportation and storage
Professional, scientific and technical
Human health and social work
Accommodation and food service
Construction
Public administration and defence
Information and communication
Financial and insurance
Education
Other
UK jobs at high risk of automation (millions)
24
March 2017UK Economic Outlook
PwC
The sector with the highest proportion of jobs at potential risk of automation by early 2030s is transport and storage, while health and education are relatively lower risk
Potential impact of job automation by UK industry sector by early 2030s
Sources: ONS; PIAAC data; PwC analysis
Wholesale and retail tradeManufacturing
Administrative and support service
Transportation and storage
Professional, scientific and technical
Human health and social work
Accommodation and food service
Construction
Public administration and defence
Information and communication
Financial and insurance
Education
0%
10%
20%
30%
40%
50%
60%
70%
0% 5% 10% 15% 20%Employment share by sector (%)
Po
ten
tia
l jo
bs
at
hig
h r
isk
of
au
tom
ati
on
by
sec
tor
(%)
25
March 2017UK Economic Outlook
PwC
One of the main drivers of a job being at potential higher risk of automation is the composition of tasks conducted, although required education levels are also important
Task composition for UK employees for example industry sectors
Sources: PIAAC data; PwC analysis
22%
38%7%
20%
11%
2%
Transportation and storage
20%
33%13%
19%
12%
2%
Manufacturing
11%
27%
12%22%
22%
6%
Education
143%
127%
59%
87%
68%
51%
Manual tasks
Routine tasks
Computation
Management
Social skills
Literacy skills
0% 100% 200%
Compared to UK average (%)
131%
110%
108%
81%
80%
64%
Manual tasks
Routine tasks
Computation
Management
Social skills
Literacy skills
0% 100% 200%
Compared to UK average (%)
69%
90%
96%
94%
144%
179%
Manual tasks
Routine tasks
Computation
Management
Social skills
Literacy skills
0% 100% 200%
Compared to UK average (%)
26
March 2017UK Economic Outlook
PwC
Some important caveats
• Estimates based on technical feasibility, ignoring economic, legal and regulatory constraints
• Little sign yet of jobs impact from automation in UK – employment rate at record high and no significant change expected in short term
• Might change if robots/AI get much cheaper and labour costs rise
• But could take many decades for robotics/AI to reach full potential:
organisational inertia/legacy systems
economic, political, legal and regulatory barriers
• Automation should also boost productivity significantly and, as the extra wealth this generates is spent/invested, this should feed through into additional jobs in less automatable sectors
• But there could be significant labour market disruption in the process, and possibly also a further rise in income/wealth inequality
27
March 2017UK Economic Outlook
PwC
Summary: will robots steal our jobs?
1Up to around 30% of UK jobs could potentially be at high risk of automation by the early 2030s, lower than the US (38%) or Germany (35%), but higher than Japan (21%).
2
The risks of automation by the early 2030s appear highest in sectors such as:• transport and storage (56%)• manufacturing (46%)• wholesale and retail trade (44%)But lower in sectors like health and education where social skills are important
3For individual workers, the key differentiating factor is education. For those with just GCSE-level education or lower, estimated potential risk of automation by early 2030s is 46%, compared to only 12% for university graduates
4In practice, not all of these jobs will actually be automated for a variety of economic, legal and regulatory reasons. Furthermore, new ‘smart automation’ technologies will boost productivity and wealth – as this wealth is spent, it will create additional jobs in hard to automate sectors.
28
March 2017UK Economic Outlook
Contacts for more information about this report
John Hawksworth (chief economist) - [email protected] / 0207 213 1650
Barret Kupelian (senior economist) - [email protected] / 0207 213 1579
Richard Berriman (data analytics) – [email protected] / 0784 178 7432
Duncan Mckellar (economist) – [email protected] / o787 281 5650
For more information on our Economics services or to access the full report, please see our website at:
http://www.pwc.co.uk/economics
http://www.pwc.co.uk/ukeo
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