UK economic growth for 2015 has been revised up to 2.3% with the services and construction sectors seeing upward revisions of 0.1% and 0.7% for Q4 respectively. Meanwhile the drop in industrial production is now estimated to have been smaller, at -0.4%. Nonetheless, this still represents a slowdown from the growth trajectory in 2014 and lead indicators point to some further modest easing in the coming quarters.
Consumer spending remains the principal driver of UK growth while the external sector continues to be a drag on the numbers; the UK’s current account deficit reached a record 5.2% of GDP last year. With business investment likely to weaken somewhat in the coming quarters and the trade deficit set to improve only gradually, consumer spending will remain the overarching determinant of growth. To this extent, the outlook for employment and earnings growth will be even more pivitol to the UK’s performance in 2016. While nominal wage growth has been picking up in recent months, at 2.1% it is by no means high even by post-crisis standards (1.8% average, 2008-present) and we suspect that the substantial underemployment and reduced labour market turnover are keeping a lid on earnings growth.
Source : RICS