Region’s economy to slow - but recession unlikely
PwC’s latest ‘UK Economic Outlook’ reveals economic growth in the West Midlands has held up better than expected in the months following the Brexit vote.
The accountancy giant’s lates forecast projects gross domestic product (GDP) in the West Midlands will grow by around 1.7 per cent in 2016, slowing to 0.8 per cent in 2017.
These 2016 GDP growth figures are below the UK average but represent an increase on the projections published by PwC in July immediately following the vote to quit the European Untion, which forecast 1.3 per cent growth in 2016 and 0.3 per cent growth in 2017.
Employment growth in the region is also projected to be around 0.7 per cent in 2016 and 0.3 per cent in 2017.
Matt Hammond, regional chairman for PwC in the Midlands and senior partner for the firm’s Birmingham office, said: "The West Midlands is well placed to weather any economic uncertainty caused by the Brexit vote.
"Our recent ‘Good Growth for Cities Index’ reveals that key cities in the region, including Birmingham, Coventry, Stoke-on-Trent and Wolverhampton and Walsall, are performing well in terms of jobs, health, the number of business start-ups and transport and environment.
"The West Midlands Combined Authority area also fared favourably sitting third in the UK, due to high scores in work-life balance, house price to earnings and income distribution.
"In addition, our recent ‘Emerging Trends in Real Estate Europe 2017’ report identified Birmingham as the highest performing UK city in terms of investment prospects, ahead of Manchester, Edinburgh and London.
"The region has the necessary ingredients for a strong economy and, looking ahead to 2017, its essential that public, civic, business and education leaders work together to further improve the economic, employment and skills prospects in the West Midlands."
For 2016 as a whole, UK GDP growth now looks likely to be around 2 per cent, which could still be the highest in the G7 according to PwC. PwC projects that UK growth will slow to around 1.2 per cent in 2017 due in particular to the drag on investment from increased political and economic uncertainty following the Brexit vote, but doesn’t expect the UK to suffer a recession next year.
It does, however, expect inflation to rise to around 2.7 per cent by the end of 2017 as the effects of a weaker pound feed through to consumers, squeezing real spending power.
John Hawksworth, chief economist at PwC, said: "A decline in business investment is likely to be the main reason for the slowdown in real GDP growth next year, driven in particular by uncertainty about the UK’s future trading relationships with the EU.
“But we expect Brexit to exert a long, slow drag on growth, rather than giving the economy a short, sharp shock.
"Businesses should therefore not be complacent about the impacts of Brexit just because the initial effect has been less negative than some had expected. However, this also gives companies more time to adjust their strategies to mitigate the risks associated with leaving the EU, while also seizing the opportunities that exist in the world beyond Europe."
While the Brexit vote poses clear risks to the Britain’s trading position with the EU, there are also opportunities arising from the UK’s strength in tradable services and its relatively strong performance in exporting to non-EU countries since 2007.
Even before the Brexit decision, PwC’s latest analysis of export prospects suggested that the share of EU markets as a destination for UK exports of goods and services could fall from 44 per cent now to around 37 per cent by 2030 as trade shifted towards faster growing emerging markets. If the UK faces additional barriers to accessing EU markets post-Brexit, then this share could drop more quickly to 30-35 per cent by 2030.