Hawksworth outlined the impact Brexit uncertainty has had on the UK economy, with GDP expected to fall from 2% in 2016 to 1.2% in 2017 as a result.
“The UK led the G7 rankings in 2016 with GDP growth of around 2%, but is expected to fall back to a middling position in 2017 as growth slows to around 1-1.5%,” Hawksworth said.
He added that this decline reflects “the gradual drag on business investment from Brexit-related uncertainty, as well as the squeeze on real household spending power from the weaker pound".
Consumer spending is also predicted to fall from 2.9% in 2016 to 2.2% next year, while inflation is expected to increase from 1.2% to 2.7% next year.
“We expect a key feature of 2017 to be a re-emergence of inflation, which we expect to rise to around 2.5-3% by the end of the year, squeezing real earnings growth,” PwC’s chief economist said.
“This pay restraint should, however, also help to avoid any significant rise in unemployment.”
Hawksworth also predicts average UK house price inflation to moderate to around 2-5% in 2017”.
Despite ruling out a recession, he did warn that the City of London could lose some business to other EU competitors next year.
“We are not predicting a recession and parts of the UK economy should remain relatively strong, particularly in the consumer services, tourism and technology sectors. But manufacturing and construction may continue to struggle and the City could suffer some loss of business to other EU countries due to the anticipated impact of Brexit,” he said.
Hawksworth added, “We expect the Bank of England to keep interest rates on hold for at least the first half of 2017, waiting to see how the economic impact of Brexit unfolds. After boosting public investment in his Autumn Statement, the chancellor is also likely to be in ‘wait and see’ mode in what could be a relatively boring Budget in March.”
Global events will also have an impact on the UK economy next year.
“If president Trump can get a significant fiscal expansion through Congress, then there could be some beneficial knock-on effect on UK exports to the US in late 2017 and during 2018,” Hawksworth said.
“However, this could be outweighed in the longer term by any moves to greater protectionism if president Trump follows through on his campaign promises in this area,” he warned.
The decisions made by Trump will also have an impact on the global economy next year, according to Kupelian.
“In the absence of the Trans-Pacific Partnership and Trade and Investment Partnership being agreed, we expect world trade to grow slower than global output for the third consecutive year.
"The resurgence of economic nationalism in some parts of the world means World Trade Organisation rules will be put to the test. The world’s biggest bilateral trade route (US-China) is likely to come under pressure.”
Despite knock-on effects for the global economy, Kupelian predicts that the US economy will grow by 2.2% next year – the fastest in the G7 - on the back of strong job creation and household consumption.
“It could surprise on the upside if the new administration lowers taxes and pursues plans to boost spending on infrastructure. We expect the US will contribute around 70% of G7 growth in our main scenario, despite making up half of G7 GDP in absolute terms,” he said.
While Asia will remain the fastest growing region in the world in 2017, Kupelian predicts the spotlight will shift away from China to India and Indonesia in 2017.
“We think Indonesia is on course to join the elite ‘trillion dollar’ economy club next year,” he said. “In comparison, we project Chinese GDP to grow at around 6% per annum. Meanwhile, India’s contribution to world GDP growth could reach almost 17%.”
“In the Eurozone, we expect the ‘peripheral’ economies to grow faster than the ‘core’ for the fourth consecutive year,” he added.
“Irish GDP growth is expected to be the leader of the peripheral pack, expanding by more than 3% per annum while France and the Netherlands lead the core at around 1.5%,” Kupelian said.
“On the jobs front, employment in the core is expected to hit an all-time high of around 97 million. But this will be outperformed by the periphery, who are expected to create around 100,000 more jobs than the core.”