Blog by Anthony Light, Oxford Economics
The UK economy has faced many obstacles over the past year, not least tackling the fallout from the unexpected Referendum result. But fears that the UK public’s vote to leave the EU would lead to an immediate economic crash proved unfounded. Indeed, whilst business confidence fell sharply in the immediate aftermath of the vote, GDP growth in the second half 2016 bettered that achieved in the first half of the year, thanks to strong consumer spending. And the labour market has continued to create jobs at an impressive pace, pushing the employment rate to an all-time high and unemployment below that recorded before the financial crisis.
However, despite the labour market’s resilience, the pace of economic growth has slowed this year due to a number of domestic headwinds. There is clear evidence that high inflation and weak pay rises are subduing consumer spending – growth ground to a halt in 2017Q2 – and businesses are wary of investing in a climate of Brexit-related uncertainty. And the Government is continuing with its programme of fiscal austerity. There may be some offset from net trade as exporters benefit from the weaker pound and improving global demand, and slower domestic spending reduces import growth, but any positive contribution will not be sufficient to offset the drags on growth from elsewhere. We expect UK GDP growth around 1.5% through 2017 and 2018, some way below the norm since the financial crisis, itself sub-par by historical standards.
Greater Manchester’s economy has broadly tracked the UK over the past five years and we expect this to continue in the near term. GDP growth of around 1.5% is by no means a disaster for Greater Manchester and the chances of a contraction in economic activity remain low. Nonetheless, weaker growth will likely be accompanied by a pause in job creation and levelling off in unemployment. And some parts of the economy are likely to shed jobs, with the cutbacks most likely to be from public services and the production sectors. Whilst these losses should be offset by gains in private services, the profile of employment growth means net job creation is likely to be concentrated in the city and its immediate environs.
The longer term outlook for Greater Manchester, and indeed the UK, will be heavily influenced by terms upon which the UK will leave the EU. Here there is much uncertainty, but it is likely the final agreement with regard to trading arrangements and migration policy will be less conducive to growth than under existing arrangements.