NIESR: UK growth unlikely to hit Government 2.8% ambition
Embargoed until 00.01am Thursday 6 February
- The decisive result of the general election has reduced political uncertainty, but elevated economic uncertainty is likely to persist until the details of the UK’s future trade relationship with the EU are settled.
- The March Budget is expected to be focused on ‘levelling up’ income levels across the United Kingdom. But additional public investment of up to around £20 billion per year is unlikely to have more than a modest impact on productivity and is not expected to offset the negative effect of Brexit.
- Our central forecast is for economic growth of around 1½ per cent per annum. The Chancellor’s aim of raising UK economic growth to around 2¾ per cent a year is unlikely to be attained in the current global economic context (one in-five chance).
Investment and productivity growth are forecast to pick up only gradually. In the short term, economic conditions are therefore set to continue roughly as they have been with slow growth and output close to capacity. GDP is expected to grow by around 1½ per cent in 2020 and 2021, unchanged from 2019. Risks to our forecast are now more evenly distributed around the main case as illustrated by the fan chart.
The labour market remains tight and the slight softening observed since early 2019 is not expected to gain pace. The unemployment rate remains at 3.8 per cent and the number of vacancies has stabilised with levels remaining historically high. Nominal wage growth has been robust and is expected to stabilise at an annual rate of 3–4 per cent this year. With little productivity growth, this means that unit labour costs are growing at an annual rate of more than 3 per cent. We forecast average consumer price inflation to remain a little below the Bank of England’s 2 per cent target in 2020. Since our last forecast, the sterling effective exchange rate has appreciated by nearly 5 per cent, which further offsets domestic inflationary pressures through lower import prices.
“Attempting to raise overall growth to around 2¾ per cent a year at the same time as levelling up the regions will require significant improvements in productivity throughout the economy, especially where productivity has hitherto been lagging,” said Garry Young, Director of Macroeconomic Modelling and Forecasting at NIESR.
“Productivity growth would need to be faster in the poorer regions if overall growth is to meet the Chancellor’s aim while the regions are levelling up. A rough calculation suggests that if productivity in the London economy were to grow by only 1 per cent a year, then it would need to grow by more than 3 per cent a year in all other regions if the UK was to achieve productivity growth of 2½ per cent a year.”
Notes for editors:
The full forecast for the UK economy will be published in the National Institute Economic Review no. 251 on Thursday 6 February. Details of NIESR’s previous UK economic forecast can be found here.
For a full copy of the UK economic forecast or to arrange interviews, please contact the NIESR Press Office: Luca Pieri or Phil Thornton on firstname.lastname@example.org / email@example.com / 020 7654 1954 / 07930 544 631
For technical questions related to the forecast, please contact:
- Garry Young on +(44) 0207 6541916 / firstname.lastname@example.org
- Arno Hantzsche on +44 (0)20 7654 1919 / email@example.com
The National Institute Economic Review is a quarterly journal of NIESR. From this issue the NIER is published by Cambridge University Press (CUP). Founded in 1534, CUP is the world's oldest publishing house and the second-largest university press in the world.
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