UK Economic Forecast

The UK economy has endured disappointing growth following the 2008-2009 global financial crisis. Prior to the financial crisis, the economy was experiencing GDP growth rates of around 3 percent; but after the economy contracted by 0.968 percent and 3.974 percent in 2008 and 2009 respectively, the UK could only post a 1.799 percent GDP growth rate (constant prices, national currency) in 2010 – one of the slowest recoveries among the OECD nations.

The UK economy has endured disappointing growth following the 2008-2009 global financial crisis. Prior to the financial crisis, the economy was experiencing GDP growth rates of around 3 percent; but after the economy contracted by 0.968 percent and 3.974 percent in 2008 and 2009 respectively, the UK could only post a 1.799 percent GDP growth rate (constant prices, national currency) in 2010 – one of the slowest recoveries among the OECD nations.

In 2011, the GDP growth rate (constant prices, national currency) was even slower at 0.915 percent; and in 2012, despite an Olympics-boosted bounce back in Q-3, the economy grew by just 0.166 percent (constant prices, national currency) that year. In fact, the UK’s GDP actually contracted at a quarter-on-quarter rate of 0.3 percent in Q-4 2012, exacerbating the government’s struggle to bring down the national debt level, which is expected to rise to 85 percent of its GDP within the next five years.

Part of the reason for UK’s slow economic growth has been the austerity plan put into place by the government in 2010. The UK austerity plan was introduced as a method to reduce a massive debt that had reached record levels after the 2008 global financial crisis. Besides cutting public spending and services, the UK government have also implemented a new wave of tax increases as part of its austerity plan. Although these methods can be effective in reducing the risk of a future debt crisis, it also has the ability to hamper economic growth. A recent Financial Times report suggests that the UK’s “era of austerity” may stretch to 2020 – two years later than the government’s pledge to eradicate the budget deficit by 2018, which had already been revised from 2015.

Consequently GDP growth rates (constant prices, national currency) for the UK are expected to be slow over the next five years. In 2013, the UK economy will grow by 0.688 percent, before achieving a higher growth path from 2014 onwards. However, at forecasted growth rates of between 1.539 percent (2014) to 2.472 percent (2018), growth is still not expected to reach the levels of prior to the financial crisis.

UK’s GDP Forecast

The UK was the 6^th largest economy in the world in 2012 according to GDP (current prices, US dollars) and the 8^th largest in the world according to GDP (PPP). In 2012, the UK’s GDP (current prices) was $2.44 trillion and its GDP (PPP) was $2.336 trillion.

In 2013, the UK’s GDP (PPP) is expected to grow to $2.391 trillion. After which, its GDP (PPP) will grow at a fairly consistent rate over the next five years. From 2014 to 2018, UK’s GDP (PPP) is expected to increase by 3.557 percent to 4.644 percent annually. By the end of 2018, UK’s GDP (PPP) is expected to reach $2.921 trillion.

Similarly, UK’s GDP (PPP) per capita is also likely to experience slow but steady growth annually during the same period. In 2012, UK’s GDP (PPP) per capita was $ 36,941.06, a 1.14 percent increase from 2012. In 2013, this is expected to grow to $37,501.70; and from 2014 to 2018, UK’s GDP (PPP) per capita will grow by an average of 3.29 percent percent annually to reach $44,100.62 in 2018. This will make UK citizens the 23^rd richest in the world.

UK’s Unemployment Forecast

The population for the UK in 2012 was 63.244 million. Out of this population, 31.9 million were employed, making UK the 20^th largest labour force in the world.

However, unemployment remains high in the UK, and is likely to remain so in the wake of the UK’s austerity plans. The UK government has warned that nearly half a million jobs could be lost in the public sector alone as the government continue its cut on public spending.

In 2012, the unemployment rate in the UK was 8.02 percent, a slight increase from 2011’s 8.015 percent. This number is expected to improve in 2013, though any improvement will be minimal at best. UK’s unemployment rate will continue to improve marginally for the next five years. By 2018, unemployment in the UK is expected to drop to 6.466 percent.

UK’s Inflation Rate & Current Account Balance Forecast

Falling oil and food prices saw the UK’s inflation rate (average consumer price change) fall to 2.843 percent in 2012 from 4.454 percent the year earlier – though is this higher than the government target of 2 percent.

In 2013, the inflation rate is expected to drop further to 2.654 percent, providing some relief for households, where wages are rising far more slowly than prices. But inflation is still likely to stay above the government’s target for the next three years, bolstered by external price pressures and administered and regulated prices.  Only by 2017, is inflation (average consumer price change) expected to drop below the 2 percent mark to 1.925 percent.

Meanwhile, the UK has the second largest current account deficit in the world, behind only the US. A collapse in overseas income has pushed the UK’s 2012 current account deficit spiralling to its worst level for more than 20 years at $85.532 billion. Comparatively the deficit was only $32.773 billion just the year before.

The UK has not had a current account surplus since 1983. Weakened exports, especially to the EU, are expected to push its deficit even higher to $105.967 billion in 2013 and $108.329 billion in 2014, though 2015 will begin a mild reversal trend. By 2016, the UK’s current account deficit is forecasted to fall back down to $100.17 billion. Only by 2018 will the deficit drop back below 2012 levels – at $76.782 billion.

Read more about the UK’s economy, including industry information, featured analysis and trade statistics below.