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UK to avoid severe recession and house price crash: PwC

UK to avoid severe recession and house price crash: PwC

The UK’s real GDP growth is projected to slow to around 1.6 per cent in 2016 and 0.6 per cent in 2017, according to PricewaterhouseCoopers, but should gradually recover thereafter as the initial shock from the Brexit vote fades.

The professional services group’s analysis draws on research conducted in March for the Confederation of British Industry, updated to take account of the latest available economic data up to early July.

It predicted quarter-on-quarter GDP growth could fall to close to zero in late 2016 and early 2017, but is then projected to recover gradually later in 2017 as the immediate post-referendum shock starts to wane.

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The UK would avoid recession in this scenario, although uncertainties around this central view are significant, with alternative scenarios showing GDP growth in 2017 of anywhere between +1.5 per cent and -1 per cent.

However, even this latter pessimistic scenario would not be a severe recession of the kind seen in the early 1980s or in 2008-9.

The main reason for the slowdown is projected to be a decline in business investment, particularly from overseas in areas such as commercial property.

Key projections for the UK economy20162017
Real GDP growth1.6%0.6%
Consumer spending growth2.5%1.3%
Inflation (CPI)0.7%1.8%
House price growth3.1%0.9%

Source: PwC main scenario projections

PwC anticipates a marked slowdown in house price growth, but no major crash. Its main scenario suggests UK house price growth decelerating to around 3 per cent in 2016 and around 1 per cent in 2017.

After this initial dip, projected house price growth picks up again to around 4 per cent in 2018 and an average of around 5 to 6 per cent per annum in the longer term, as persistent supply shortages keep house prices rising faster on average than earnings.

The estimated impact of Brexit varies by region: average house prices in London could be around £60,000 lower due to Brexit than they would otherwise have been by 2018, in contrast to a reduction of £10,000 in Scotland and just £8,000 in the north east of England.

Richard Snook, senior economist at PwC, explained there are four main reasons why the vote will lead to a slowdown in the housing market in the short term: the deterrence of foreign investment, uncertainty regarding the future of EU nationals living in the UK, a reduction in consumer confidence and turbulence in the banking sector.

“While these factors will weigh heavily on the market in the short term, we expect a gradual recovery from 2018 onwards as market fundamentals reassert themselves,” he added.

peter.walker@ft.com