Economics may be a dismal science but the predictions for the year ahead are not as bad as might have been expected. The 50 respondents to the fourth annual economics survey by The Times are confident that a hard Brexit on World Trade Organisation rules will be avoided, the squeeze on living standards will end and growth is more likely to overshoot official forecasts than fall short.
The only group for which there is strong agreement that 2018 will not be kind is London homeowners: economists expect house prices to drop by as much as 5 per cent in the capital next year while creeping up nationally.
That said, the panel of economists, which includes some prominent Leave supporters, accepts almost unanimously that 2018 will be a volatile year. Markets will bounce around and the pound, described as “a Brexit barometer” by Capital Economics’ Paul Hollingsworth, will gyrate wildly, much as it has in 2017.
Vicky Pryce, former joint head of the Government Economic Service, best expresses the sense of unpredictability. “The possibilities are unending: there could be further rifts in the Tory cabinet, there may have been a new leader or another election by year-end,” she says. “A lot of turbulence is likely.”
Even so, the 50 economists are fairly sanguine about the risks as the country counts down 12 of the final 15 months to Brexit Day.
Talks will proceed, if not smoothly then sufficiently for the UK to secure a transition deal and withdrawal agreement by the year end. Ruth Lea, economic adviser to the Arbuthnot Banking Group, who supported leaving the EU, puts the chances of a no-deal hard Brexit at 25 per cent but that is the highest probability the panel has to offer.
The majority of respondents reckon GDP growth next year will be at least as strong as the 1.5 per cent that the Office for Budget Responsibility has estimated for 2017 and better than the 1.4 per cent forecast for 2018.
Households face another difficult year but wages are broadly expected to start rising faster than prices, easing the squeeze on living standards that has been in force for seven months. Sterling will end the year around its current level of $1.34.
Borrowing costs will rise, whether there is an interest rate increase or not, as markets drive up the cost of government debt, but most economists expect one or two more moves by the Bank of England.
Kathleen Brooks, research director at City Index, captures the panel’s mood most succinctly. GDP growth in 2018, she says, will be “lacklustre, way behind our peers, but not disastrous”.
Most respondents expect the economy to expand by more than 1.5 per cent, making them more optimistic than the Office for Budget Responsibility, but Britain will be in the slow lane compared with the eurozone. On average, respondents believe the single currency bloc will achieve growth of about 0.75 percentage points above the UK in 2018.
Some hold far stronger views. Joanna Davies, senior economist at Fathom Consulting, is the most pessimistic, with a forecast for 0.3 per cent growth and “a mild technical recession” of two consecutive quarters of contraction. Inflation will remain at 3 per cent with wages weaker, Ms Davies reckons, hammering the consumer.
At the other end of the spectrum are Patrick Minford, professor of economics at Cardiff University, and Gerard Lyons, chief economic adviser at Policy Exchange, both of whom supported Brexit and reckon growth will be 2 per cent. Mr Hollingsworth at Capital Economics, which was founded by Brexit-supporting Roger Bootle, is more optimistic still at 2.2 per cent.
To read the report in full, click here.