Lacklustre UK GDP growth to continue in 2018

05 December 2017

  • A 64 per cent chance of less than two per cent growth perdicted for 2018
  • The probability of inflation hitting three per cent next year is on the rise
  • WBS Forecasting System believes lacklustre UK GDP growth will continue
  • Near certain that GDP for 2017 will be less than two per cent

The Warwick Business School Forecasting System (WBSFS) is predicting a 64 per cent chance that growth in 2018 is less than two per cent, up from 45 per cent one quarter ago.

The Office for National Statistics (ONS) confirmed the UK economy grew by just 0.4 per cent in the third quarter of 2017 with its second revision of the GDP figure.

And in line with the downward revisions to economic growth recently made by the Office for Budget Responsibility (OBR), the WBFS is increasingly confident that economic growth in 2018, as in 2017, will be lacklustre: 

According to the WBSFS, the HM Treasury Panel, National Institute of Economic and Social Research (NIESR) and OBR are slightly too pessimistic about growth prospects in 2018, with the WBSFS suggesting a greater than 50 per cent chance that growth exceeds their point forecast. But these numbers are closer to 50 per cent than in previous quarters, reflecting a growing consensus of lacklustre GDP growth in 2018.

The WBSFS has also revised up its forecast for inflation, so that there is now a 27 per cent chance that inflation exceeds three per cent in 2018.

Professor Ana Galvao, of the Economic Modelling and Forecasting (EMF) Group at WBS, said: “Conditioning on the ONS’ latest GDP growth estimates for 2017Q3, the WBSFS now suggests a near certain chance of GDP growth of less than two per cent in 2017, up from 88 per cent one quarter ago and 68 per cent two quarters ago.”

Professor James Mitchell, of the EMF Group, added: “In line with the downward revisions to economic growth recently made by the OBR, the WBSFS is increasingly confident that economic growth in 2018 will be lacklustre: the WBSFS now predicts a 64 per cent chance that growth in 2018 is less than two per cent, up from 45 per cent one quarter ago.”

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Professor Anthony Garratt, of the EMF Group, said “The WBSFS agrees with the Bank of England, HM Treasury’s panel of independent forecasters, NIESR and the OBR that inflation for 2017 will almost certainly be between two and three per cent and that these higher levels of inflation will persist into 2018. The probability of inflation exceeding three per cent in 2018 has risen from 23 per cent, one quarter ago, to 27 per cent.” 

Instead of using a single forecasting model or relying on the judgement of the Bank of England’s Monetary Policy Committee the WBSFS combines five state-of-the-art econometric models to produce judgement-free macroeconomic forecasts for UK GDP growth and CPI inflation. These forecasts are updated each quarter to reflect the latest data.

By using model averaging and following well-established methods in statistics, meteorology and economics, the WBSFS takes a weighted combination of each models’ forecasts, where higher weights are awarded to models that show the better recent forecasting performance. The WBSFS quantifies and communicates the forecast uncertainties by producing probabilistic forecasts. 

For more on the WBSFS visit its website.

Professor James Mitchell teaches Managing in a New World on the Full-time MBA and Economics of the Business Environment? on the Executive MBA and Executive MBA (London)

Professor Anthony Garratt teaches Economics in the Global Environment on the MSc Management course and on the Executive MBA and Empirical Applications in Macro, Financial and Energy Economics? on the MSc Finance.

Professor Ana Galvao teaches Economics for Management and Business and Forecasting for Decision Makers on the MSc Management course.