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Contents 1 2 3 4 Global outlook UK economic trends and prospects Consumer spending prospects after Brexit Will robots steal our jobs? 2
Global growth in 2017 should be slightly stronger than in 1.9 UK Canada Ireland 1.6 Germany Russia 1.0 1.6 3.2 Greece US 2.2 France 1.4 1.6 Japan Mexico 1.8 Spain 2.3 1 Italy China 6.5 0.5 Global (MER) 2.9 Key Global (PPP) 3.4 Eurozone 1.6 x.x = GDP growth in 2017 Source: main scenario Brazil 0.4 South Africa India 1.0 7.3 Australia 2.7 3
UK economic trends and prospects 4
Growth in UK services remains relatively strong, but manufacturing has slowed and construction remains volatile Sectoral output and GDP trends 120 115 110 105 Index ( 2007 = 100) Services GDP Construction 100 95 Manufacturing 90 85 80 75 70 2007 Q3 2008 Q3 2009 Q3 2010 Q3 2011 Q3 2012 Q3 2013 Q3 2014 Q3 2015 Q3 Q3 Services GDP Manufacturing Construction Source: ONS 5
Strong post Brexit recoveries in the services and manufacturing sectors have tailored off in early 2017 Purchasing Managers Indices of business activity 65 60 Services 55 50 45 Above 50 indicates rising activity levels Manufacturing Downward blip after Brexit vote 40 35 30 2007 JAN 2008 JAN 2009 JAN 2010 JAN 2011 JAN 2012 JAN 2013 JAN 2014 JAN 2015 JAN JAN 2017 JAN Services Manufacturing Source: Markit/CIPS 6
s regular survey shows the rise in consumer confidence stalling following its post Brexit recovery 10% 0% -10% -20% -30% -40% -50% -60% APR 2008 AUG 2008 NOV 2008 MAY 2009 JAN 2010 JUL 2010 DEC 2010 MAY 2011 DEC 2011 SEPT 2012 Balance of opinion MAY 2013 JAN 2014 NOV 2014 APR 2015 NOV 2015 MAR SEP Source: Consumer Survey 7
Concerns about Brexit have left sterling weak against the dollar and euro, pushing up UK import prices US dollar and euro exchange rates against the pound 1.600 1.500 1.400 EU referendum 1.300 USD/ 1.200 1.100 EUR/ 1.000 JAN FEB MAR APR MAY JUN JUL AUG SEP SEP OCT NOV DEC 2017 NOV 2017 MAR US Dollar Euro Source: Bank of England 8
UK growth is likely to ease in 2017-18 due to business uncertainty and slowing consumer spending growth Alternative UK GDP growth scenarios Projections 4% 2% 0% Strong growth Main scenario Mild recession -2% -4% -6% -8% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2017 2018 Source: ONS, scenarios 9
London is expected to remain the fastest growing region, though all regions are projected to have positive growth 2.5% main scenario for output growth by region in 2017 and 2018 2.0% 2017 2018 1.5% 1.0% 0.5% 0.0% Source: analysis 10
The persistent weakness of the pound is expected to push UK inflation above target later this year 5% Alternative UK inflation (CPI) scenarios % change on a year earlier Projections 4% High inflation 3% 2% Inflation target = 2% Main scenario 1% Low inflation 0% 2010 2011 2012 2013 2014 2015 2017 2018 High inflation Main scenario Low inflation Inflation target Source: ONS, scenarios 11
Real earnings growth is projected to be around zero in 2018 as inflation picks up and nominal earnings growth slows CPI inflation vs average earnings growth % change p.a. 5.0% CPI Projections 4.0% 3.0% Real squeeze 2.0% Earnings 1.0% 0.0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2017 2018 CPI Average weekly earnings (excl bonus) Source: ONS, analysis 12
Summary: UK economic trends and prospects 1 2 3 4 UK economic growth has held steady at around 2% in the year to Q4 with no immediate deceleration after the Brexit vote. In our main scenario, we project UK growth to decelerate from 1.8% in to around 1.6% in 2017 and 1.4% in 2018, driven primarily by subdued business investment and moderating consumer spending. But a recession is unlikely in 2017-18 unless there are wider global economic shocks beyond Brexit. The pound has fallen significantly since the Brexit vote, which will push up import prices and squeeze real household spending power in 2017-18 as inflation rises above its 2% target. We project that London will remain the fastest growing region in 2017-18, despite its pace of growth falling significantly since 2015. Other regions will also see more modest growth in 2017 and 2018, but none should fall into recession. 13
Consumer spending prospects after Brexit 14
Percent UK household savings ratio in steady decline since 2010, boosting consumer spending, but this can t continue forever Historical trends in official and adjusted UK household saving ratios 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Savings ratio (% of household resources) Adjusted savings ratio (% of gross household income) Source: ONS, analysis 15
We expect consumer spending growth to moderate in 2017 and 2018 as higher inflation squeezes real spending power 3.5 Real consumer spending growth (%) 3 2.5 2 1.5 1 0.5 0 2015 2017 2018 Source: ONS, main scenario for 2017-18 16
Looking further ahead, we project spending on housing and utilities to rise to almost 30% of total spending by 2030 as housing shortages continue Source: ONS historic, projections 17
Import intensity (% of household consumption) Import-intensive clothing and food industries likely to be significant losers from Brexit-related weakness of pound Household consumption import intensities 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Source: ONS, analysis 18
Workers with overseas nationality as a proportion of total UK workforce Retail, hotel and restaurant sectors could be particularly vulnerable to any significant reductions in EU migration Foreign nationals as a proportion of the UK workforce 12% 10% 8% 6% 4% 2% 0% Distribution, hotels & restaurants Source: ONS, analysis Manufacturing Construction Public admin, education & health EU14 A10 ROW 19
Summary: Consumer spending trends after Brexit 1 2 Adjusted saving ratio has declined steadily since 2010, which has helped support a strong recovery in consumer spending since 2012 that has continued since the Brexit vote. But we expect spending growth to slow from around 3% in to around 2% in 2017 and around 1.7% in 2018 as higher inflation squeezes real household spending power. We project the spending share of housing and utilities to rise to 29% by 2030 as housing supply continues to be restricted relative to demand. Spending shares of essentials such as food and clothing are expected to decline as incomes rise, whilst the spending shares of luxury items such as restaurants increases in the long term. 3 4 The food and clothing industries are most vulnerable to the short term impact of Brexit as the weaker exchange rate increases costs in these import intensive industries. But UK inbound tourism has already gained from a weaker pound. The retail, hotel and restaurant sectors are most sensitive to changes in the number of EU nationals permitted to work in the UK, although these impacts could be offset in part if there was any relaxation in limits on non-eu migration (but not current government policy). 20
Will robots steal our jobs? 21
Potential jobs at high risk of automation (%) We found that around 30% of jobs in the UK are at potential high risk of automation and around 38% in the US lower than Frey and Osborne, but higher than OECD study What proportion of jobs are potentially at high risk of automation by early 2030s? 50% 47% 40% 30% 30% 35% 38% 20% 10% 10% 9% 0% UK FO AGZ US Sources: analysis; Frey and Osborne ( FO, 2013), Arntz, Gregory and Zierahn ( AGZ, OECD, ) 22
Potential jobs at high risk of automation (%) Compared to the UK, the US and Germany have an increased potential risk of job automation, Japan has a lower risk Proportion of jobs at potential high risk of automation by country by early 2030s 50% 40% 38% 35% 30% 30% 20% 21% 10% 0% UK US Germany Japan Sources: ONS; PIAAC data; analysis (based on estimated technical feasibility) 23
Several million jobs could potentially be at risk of automation in the UK by early 2030s, but this will be a gradual process with offsetting job gains elsewhere Potential jobs at high risk of automation by UK industry sector Total UK job automation Wholesale and retail trade Manufacturing Administrative and support service Transportation and storage Professional, scientific and technical Human health and social work Accommodation and food service Construction Public administration and defence Information and communication Financial and insurance Education Other Sources: ONS; PIAAC data; analysis 0m 2m 4m 6m 8m 10m 12m UK jobs at high risk of automation (millions) 24
Potential jobs at high risk of automation by sector (%) The sector with the highest proportion of jobs at potential risk of automation by early 2030s is transport and storage, while health and education are relatively lower risk Potential impact of job automation by UK industry sector by early 2030s 70% 60% 50% 40% 30% 20% 10% Financial and insurance Information and communication Construction Transportation and storage Public administration and defence Manufacturing Accommodation and food service Administrative and support service Professional, scientific and technical Education Human health and social work Wholesale and retail trade 0% 0% 5% 10% 15% 20% Employment share by sector (%) Sources: ONS; PIAAC data; analysis 25
One of the main drivers of a job being at potential higher risk of automation is the composition of tasks conducted, although required education levels are also important Task composition for UK employees for example industry sectors Transportation and storage 2% Manufacturing 2% Education 20% 11% 22% 19% 12% 20% 22% 6% 11% 27% 7% 38% 13% 33% 22% 12% Compared to UK average (%) Manual tasks Routine tasks Computation Management Social skills Literacy skills 0% 100% 200% 143% 127% 59% 87% 68% 51% Compared to UK average (%) Manual tasks Routine tasks Computation Management Social skills Literacy skills 0% 100% 200% 131% 110% 108% 81% 80% 64% Compared to UK average (%) Manual tasks Routine tasks Computation Management Social skills Literacy skills 0% 100% 200% 69% 90% 96% 94% 144% 179% Sources: PIAAC data; analysis 26
Some important caveats Estimates based on technical feasibility, ignoring economic, legal and regulatory constraints Little sign yet of jobs impact from automation in UK employment rate at record high and no significant change expected in short term Might change if robots/ai get much cheaper and labour costs rise But could take many decades for robotics/ai to reach full potential: organisational inertia/legacy systems economic, political, legal and regulatory barriers Automation should also boost productivity significantly and, as the extra wealth this generates is spent/invested, this should feed through into additional jobs in less automatable sectors But there could be significant labour market disruption in the process, and possibly also a further rise in income/wealth inequality 27
Summary: will robots steal our jobs? 1 Up to around 30% of UK jobs could potentially be at high risk of automation by the early 2030s, lower than the US (38%) or Germany (35%), but higher than Japan (21%). 2 The risks of automation by the early 2030s appear highest in sectors such as: transport and storage (56%) manufacturing (46%) wholesale and retail trade (44%) But lower in sectors like health and education where social skills are important 3 4 For individual workers, the key differentiating factor is education. For those with just GCSElevel education or lower, estimated potential risk of automation by early 2030s is 46%, compared to only 12% for university graduates In practice, not all of these jobs will actually be automated for a variety of economic, legal and regulatory reasons. Furthermore, new smart automation technologies will boost productivity and wealth as this wealth is spent, it will create additional jobs in hard to automate sectors. 28
Contacts for more information about this report John Hawksworth (chief economist) - john.c.hawksworth@pwc.com / 0207 213 1650 Barret Kupelian (senior economist) - barret.g.kupelian@pwc.com / 0207 213 1579 Richard Berriman (data analytics) richard.berriman@pwc.com / 0784 178 7432 Duncan Mckellar (economist) duncan.mckellar@pwc.com / o787 281 5650 For more information on our Economics services or to access the full report, please see our website at: http://www.pwc.co.uk/economics http://www.pwc.co.uk/ukeo This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. 2017 PricewaterhouseCoopers LLP. All rights reserved. In this document, "" refers to the UK member firm, and may sometimes refer to the network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.