UK Growth to Sink Further

The UK was one of the fastest growing advanced economies in 2016 but dropped below all other Group of Seven economies in 2017. The UK economy is expected to remain at the back of the pack this year, with Japan and Italy.

Just over half of the 111 economists who responded to a survey expect growth to be no more than 1.5% in 2018, news outlets reported.

Britain's economy will slow further as business investment remains on hold, interest rates creep up and indebted consumers curb their spending. The majority of economists who took part in the Financial Times annual predictions survey agreed that inflation would start to recede this year, after last year correctly forecasting it would rise sharply.

However, after wrongly predicting that interest rates would remain frozen in 2017, economists believe there will be a further 0.5 percentage point rise this year.

In November, the Office for Budget Responsibility forecast 1.5% growth for 2017, though this could eventually be lifted slightly by recent revisions to the official statistics, and 1.4% for 2018.

“The UK is expected to lag behind most of Europe as well as other developed economies in 2018,” said Dawn Holland, the head of the global economic monitoring unit at the UN. “While globally conditions for investment have started to improve, business investment in the UK seems to be grinding to a halt.”

Brexit will continue to preoccupy the country as the UK and the EU move on to the second phase of negotiating a transition period after Britain leaves the bloc and a future trade relationship.

Wage Growth

Workers are likely to get a pay rise this year after a decade of stagnant wage growth. But with unemployment at a 40-year low, how much of a pay rise will British workers get in 2018?

Howard Archer, chief economic adviser, EY Item Club says: "We forecast earnings growth to pick up modestly from an estimated 2.3% in 2017 to 2.7% in 2018. We expect earnings growth to pick up modestly as a consequence of recruitment difficulties in some sectors and higher inflation fuelling some increased pay awards.

"However, fragile consumer confidence is expected to deter many workers from pushing strongly for major pay increases while companies will undoubtedly look to limit pay in order to keep their total costs down as they face an ongoing challenging and uncertain domestic economic environment."

Nicholas Barr, professor of public economics, London School of Economics says: "Pay increases on average (though with exceptions in some sectors) will be slow; much of the reason for low unemployment is slow wage growth.

Ray Barrell, professor, Brunel University London says: Real wages growth is likely to be negative next year as the economy slows down, with nominal wage growth unlikely to be much above 2%.

Bottom of OECD Table

Britain is set to have the worst wage growth of any wealthy nation next year, ranking behind Italy, Greece and Hungary, according to analysis by the Trades Union Congress, The Guardian reported.

The UK is forecast to come bottom from 32 Organization for Economic Cooperation and Development wealthy nations for wage performance in 2018, according to the study of OECD figures by the unions’ umbrella group.

British workers are expected to see their earnings decrease by 0.7% in 2018 when taking account of inflation, which has surged in the past year as a result of the pound’s weakness since the EU referendum, pushing up the cost of importing food and fuel.

Only two other OECD nations–Spain and Italy–are expected to record negative wage growth, although both still outperform the UK.

In contrast, Hungary is expected to come top for real wage growth next year, with pay set to accelerate by 4.9%. The eurozone is forecast to see growth in earnings of 0.6%.

In her new year message for 2018, ahead of the 150th anniversary of the Trade Union Congress in June, general secretary Frances O’Grady said: “Real wages are still lower than they were when the financial crisis hit in 2008. And 2018 is set to be bleaker still.”

Average weekly earnings have lagged behind inflation for eight months straight this year, despite a recent slight pick-up in wage growth. The annual increase in the three months to October was 2.3%, while the most recent rate of inflation in the year to November was 3.1%.