UK economic growth held up better than expected in the six months following the Brexit vote, but this began to ease in early 2017 as inflation has risen, squeezing household spending power.
In our main scenario, we project UK growth to slow to around 1.6% in 2017 and 1.4% in 2018 due to slower consumer spending growth and the drag on business investment from Brexit-related uncertainty.
Service sector growth will slow but remain positive in 2017-18, but construction may suffer from lower investment levels. Manufacturing and services exporters should benefit from the weaker pound.
Longer term, we expect the UK economy to grow at around 2% after Brexit, with consumer spending rising at a similar rate but increasingly focused on housing and utilities, financial services and personal care. Spending on food, clothing, alcohol and tobacco will take a declining share of total spending.
Around 30% of existing UK jobs could be at potential risk of automation by the early 2030s, with the most exposed sectors including retail and wholesale, transport and storage, and manufacturing. Less educated workers face the highest risks of automation.
But these new technologies will also boost productivity, wealth and spending. This should generate jobs in service sectors that are less easy to automate, but could also increase income inequality.
Government needs to respond by reshaping education and vocational training to help workers adapt to this fast evolving technological world. Measures to redistribute income should also be considered, but need careful design to avoid adverse incentive effects.