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PwC Says UK Growth To Slow With Declining Consumer Spending

The UK economy is likely to suffer from a slowdown in growth as households cut back on spending based on research conducted by global consultancy firm PwC. The country’s GDP growth is likely to drop to 1.4 percent in 2018 from 1.8 percent in 2016 reflecting the squeeze on British consumer spending due to rising inflation and falling wages the PwC report said.

In a statement John Hawksworth, the chief economist at PwC said

Brexit-related uncertainty may hold back business investment, but this should be partly offset by planned rises in public investment. Fiscal policy could also be further relaxed in the 2017 autumn budget to offset the ongoing real squeeze on household spending power. We expect the UK to suffer a moderate slowdown, not a recession, but businesses should be monitoring this and making contingency plans

Hawksworth noted that there was an upside to Brexit, if the negotiations with the European Union (EU) go smoothly and the recovery in the Eurozone sustains. PwC said that the UK economy had surprisingly remained resilient in the immediate aftermath of the referendum results in June 2016. The growth rate for the third quarter of 2016 was at 0.6 percent while in the fourth quarter it was 0.7 percent. These trends indicated that the economy had recorded stronger growth in the second half than the first.

However the firm noted that growth had slowed significantly in the first half of 2017. The GDP growth in this year’s first quarter was recorded at 0.2 percent, indicating that a pay squeeze was having an impact particularly on the dominant services sector of the UK economy.

PwC expects the inflation to touch 3 percent later this year. The report said that so far households had been borrowing to sustain spends but there was a limit to this, as household savings ratio was at a record low in the first quarter of 2017. Referencing the sharp drop in housing transactions in the first quarter of 2017, the PwC report also highlighted that the declining value of the pound was affecting the country’s purchasing power.

PwC expects the house price inflation to drop from 7 percent in 2016 to 3.7 percent this year. London which is the country’s most valuable property market is expected to suffer the most. In the first four months of 2017, house price inflation in London was around 4 percent as compared to the 13 percent recorded in the same period in 2016. According to PwC, the slowdown in the capital city’s housing market was likely to continue with housing prices rising on an average by 2.8 percent this year.

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