For the United Kingdom, 2016 has been an interesting year. The vote to leave the EU and US presidential election were largely unexpected results. Unemployment in the UK continued to fall, the pound weakened, inflation hit a 2-year high, while interest rates remained unmoved.
Looking ahead to 2017, more uncertainty abounds as Brexit becomes reality and the possibility of another Scottish independence referendum looms. According to PwC chief economist John Hawksworth, “The UK led the G7 rankings in 2016 with GDP growth of around 2 percent, but is expected to fall back to a middling position in 2017 as growth slows to around 1-1.5 percent. This reflect the gradual drag on business investment from Brexit-related uncertainty, as well as the squeeze on real household spending power from the weaker pound.”
However, Hawksworth’s predictions are not entirely pessimistic. “We are not predicting a recession and parts of the UK economy should remain relatively strong, particularly in the consumer services, tourism and technology sectors,” he notes. “But manufacturing and construction may continue to struggle and the City could suffer some loss of business to other EU countries due to the anticipated impact of Brexit.”
In the larger context, the reemergence of protectionism could have a chilling effect on prospects for the global economy next year. “In the absence of the Trans-Pacific Partnership and Trade and Investment Partnership being agreed, we expect world trade to grow slower than global output for the third consecutive year,” notes Barret Kupelian, senior economist at PwC. “The resurgence of economic nationalism in some parts of the world means World Trade Organization rules will be put to the test. The world’s biggest bilateral trade route (US-China) is likely to come under pressure.”
Turning to the outlook in the US, Kupelian said, “In our main scenario, we expect the US to grow by 2.2 percent—the fastest in the G7— on the back of strong job creation and household consumption. It could surprise on the upside if the new administration lowers taxes and pursues plans to boost spending on infrastructure.”