South East: Region forecast to deliver UK's strongest growth in 2019
The South-East is forecast to deliver the highest economic growth among the 12 UK regions in 2019 after an already strong performance in 2018, according to PwC’s latest UK Economic Outlook.
PwC says economic growth in the South East in 2018 is forecast to tie with London for top place with growth of 1.6%, but should edge up to around 1.7% in 2019, while London and overall UK growth will remain at around 1.6%.
Adding to the suggestions that recovery in the South East is continuing, data from the Office for National Statistics (ONS) show that the South East witnessed the third largest rise in its employment rate in the year to December 2017. Just behind the North East and the East of England, the South East saw its employment rate grow by around 1.3% in the year.
PwC’s latest UK Economic Outlook undertook a detailed comparison of the UK regions’ relative performance over the past two decades. This suggest that there is a positive relationship between relative regional GVA growth rates in regions like the South East and high levels of education and skills, business formation and employment in professional and technical services.
PwC South East regional chairman Keith Harrington said the detailed analysis of ONS data provides additional insight into the performance and future potential of the region’s economy:
“The South East demonstrates many of the key ingredients for continued growth - high levels of manufacturing output, equally higher levels of professional, technical and service growth and the second highest level of educational level in the UK, after London.
“Nonetheless, there is no room for complacency. Forecast growth in the South East for 2019 may be the best amongst the UK regions but it’s still less than half the level of growth the region delivered pre-recession.
“We need to stimulate greater levels of investment trade and export across the region, particularly amongst our private business sectors, if we are to make the best of the assets and strengths at our disposal.
Looking to 2019, the UK Economic Outlook says that real consumer spending growth is expected to slow from around 1.8% in 2017 to around 1.1% in 2018. Subsequently consumer spending is projected to edge up to 1.3% in 2019, but has the potential to return to around 2% trend growth on average in the 2020s assuming a reasonably favourable Brexit outcome and productivity gains from automation.
Housing and utilities will continue to consume a rising share of household budgets according to PwC’s analysis, reaching over 30% by 2030 compared to around 27% in 2017. Financial services and personal care are also likely to take a rising share of total consumer spending, while the share of spending on clothing, food, alcohol and tobacco, and transport will tend to decline in the long run.
John Hawksworth, chief economist at PwC, commented: “Consumer spending accounts for more than two thirds of UK GDP, making it the most important driver of UK economic growth. But it has slowed significantly recently as higher inflation has squeezed consumer spending power and it looks set to remain sluggish in the short term, dampening overall GDP growth.
“Looking to the 2020s, however, growth could return to its long term trend rate of around 2% if the UK can negotiate a favourable future deal with the EU and automation boosts domestic productivity growth and holds down prices.
“The pattern of consumer spending will continue to evolve in the longer term, with our projections suggesting that housing and utilities will continue to eat up more of household budgets, while spending on other essentials like food and clothing tends to decline.”
PwC also says that automation could reduce the number of retail jobs in the long term, but also benefit consumers by lowering prices. By the mid-2030s, over 40% of existing jobs in the UK retail and wholesale sector could potentially be impacted by automation. This will reduce prices for consumers, stimulating demand for other services and new jobs where tasks are less prone to automation.
Technological innovations will also create new jobs, from online website designers and AI specialists to those involved in designing, supervising, repairing and maintaining robots. Additionally, PwC suggests that efficiency improvements from automation will allow consumer prices to be kept lower than would otherwise be the case, leaving more money to be spent on other goods and services, which will in itself create additional human jobs.
