Brexit uncertainty will truly hit home over the next 12 months with GDP and the housing market feeling the full effect of stiff headwinds.
Consultancy PwC has predicted that economic growth will dip from 1.8% last year to just 1.5% this year and dip even lower, to 1.4%, in 2018.
Consumers will also be very wary on what they spend, its report warned, as inflation eats into spending power and wage growth remains subdued.
Meanwhile, the UK’s housing sector will also continue to cool: while prices will continue to rise, that rate will be slashed by half, PwC predicted.
Nationally, house price inflation will hit 3.7% in 2017, down from 7% in 2016. The average residential property in the UK could be worth approximately £220,000 in 2017, £8,000 higher than in 2016 and could rise to over £300,000 by 2025.
PwC’s key economic projections
Real GDP growth
Consumer spending growth
Source: PwC main scenario projections
And, London prices will be hardest hit. Inflation in the first four months of 2017 was about 4% compared with about 13% for the same period in 2016.
PwC projects the capital’s housing market will continue to slow, with only 2.8% and 3.8% growth on average in 2017 and 2018, respectively.
John Hawksworth, chief economist at PwC, struck a cautious note on the UK’s immediate economic future, saying Brexit uncertainty may well hold back business investment but that planned public investment could “partly” offset this.
“Fiscal policy could also be further relaxed in the 2017 autumn Budget to offset the ongoing real squeeze on household spending power,” he said.
“We expect the UK to suffer a moderate slowdown, not a recession, but businesses should be monitoring this and making contingency plans.”
PwC projections for UK house price inflation and average house prices
Main scenario (% growth)
Main scenario (£)
4.1% average growth
£302,000 in 2025
Source: PwC analysis based on ONS house price index
Housing transactions, which tend to be more volatile than prices, are where uncertainty caused by Brexit has manifested itself most strongly, said PwC. Year-on-year the number of transactions have been down for 12 consecutive months.
While the average house price across the UK has grown by 17% since mid-2007, over a quarter of all local authorities are still below the 2007 peak.
PwC’s analysis has also showed London’s housing market has seen a structural shift recently, as house price growth has moved outward from the capital.
A growing lack of affordability within London, coupled with policy reform, has seen house prices in prime central boroughs slow while prices in the outer boroughs and the commuter belt have risen.
Their view is supported by another report, from the Centre for London think tank, which showed that the capital’s economy is wobbling from the early effects of Brexit judging from the faltering housing market, fewer European Union citizens seeking work and weaker job creation.