Julia Irvine 8 Dec 2017 12:32pm

ICAEW predicts weak GDP growth for the coming year

ICAEW has revised its forecast for growth downwards to 1.5% for the fourth quarter of 2017 and is forecasting very little improvement in 2018 – up 0.1% to 1.6% – despite the positive impact that the weaker pound is starting to have on businesses that manufacture and export.

According to the latest ICAEW economic forecast, the economy is being stymied by the uncertain outcome of the Brexit negotiations.

This is undermining business confidence to such an extent that businesses are playing a game of wait and see and sitting on their cash rather than spending it.

The knock-on effect in 2017 was a fall in capital investment to its second weakest level (forecast to be 2.1%) since the global financial crisis and ICAEW is predicting that it will slow down even more in 2018 to just 1.5%.

The lack of capital investment will impact negatively on productivity. ICAEW says that output per hour grew in Q3 2017 at the fastest rate since 2011, but entirely as a result of the reduction in hours worked rather than any real improvement in productivity.

Of course, if it wasn’t for the issues over the Brexit negotiations, the economy would probably be in a far better place, ICAEW CEO Michael Izza believes.

“With corporate cash balances still very high and interest rates near all-time lows, businesses are clearly able to invest given the right economic and political outlook,” he says.

“So, if the government were to deliver greater clarity over future trading opportunities, businesses could well be convinced to accelerate their spending.

“That means moving quickly to the second phase of the negotiations with the EU but more importantly, agreeing a transition deal early in the new year.”

The ICAEW economic forecast also points to the slowdown in job creation experienced in the second half of 2017 and suggests that, while the private sector will be able to carry on creating jobs in 2018, this is likely to be at a much reduced rate and constrained by the lack of skills labour in some sectors.

Looking on the bright side though, the weak pound is finally having a positive impact on manufacturing costs. Manufacturers are seeing input cost pressures beginning to ease and competitiveness improving.

Izza says that ICAEW is concerned about the medium and long-term economic outlook and urges the government to sort Brexit out, persuade the business community to speed up investment in skills, training and technology, and give its support to exporters.