New Year: a time for resolutions, detox diets and predictions. But after the year forecasters had in 2016, who would be brazen enough to predict how 2017 will pan out?
Where most economists went wrong last year – including the likes of the Bank of England and International Monetary Fund – was in predicting a sharp slowdown in the event of a vote for Brexit. George Osborne, for example, made the misjudged warning that a vote to leave the EU was a vote for recession.
The early data could be revised, but it suggests that far from grinding to a halt, the economy continued to grow in the months following the referendum. Consumers kept spending, house prices rose and businesses continued to win new contracts at home and abroad.
There are plenty of signs the economic pain has been delayed rather than averted. Inflation is picking up as a weak pound raises import costs. Cracks are showing in the jobs market and wages will soon struggle to keep pace with inflation. Business and consumer confidence have waned. And Brexit negotiations haven’t even begun.
There are other threats beyond Brexit. Elections in the eurozone may bring turmoil to the bloc if support rises for anti-establishment nationalists. In the US, Donald Trump moves into the White House in less than three weeks and there is a risk he may start a trade war with China that could have global consequences.
Yet there are still reasons to hope that 2017, like 2016, will not turn out as bad as the doomsayers predict. Surely, one lesson from last year is that when forecasters accentuate the negative they risk missing the positives altogether.
So to start the new year on an upbeat note, here are a few reasons to be cheerful in 2017.
The economy will keep growing
The UK economy remains unbalanced, with an over-reliance on consumer spending, but it chalked up respectable growth in 2016. Expansion will most likely slow in 2017, but the UK should avoid recession.
The services sector’s fortunes will depend largely on how hard inflation hits consumer spending. Manufacturing and construction face a tough year as uncertainty and higher costs bite. But tourism and exports should be helped by a weak pound and there has been no exodus of foreign firms from Britain yet.
Productivity is back in the spotlight
After years of the UK lagging other big economies on productivity, ministers have vowed to sort out economic efficiency and the chancellor, Philip Hammond, announced a £23bn productivity fund in his autumn statement. It will not go very far but it is a start.
The government push could be complemented by the private sector if the adversity and higher costs sparked by the Brexit vote force firms to improve their productivity. With a slowdown in immigration and a rise in the minimum wage coming, employers will need to look beyond cheap labour to maintain their profit margins. Ideally, that means investing more in good management, training and technology.
Wages for the lowest paid will rise
Inflation will squeeze average take-home pay in 2017, but for the lowest paid there is some good news as the “national living wage” – the minimum wage for over-25s – will rise in April from £7.20 to £7.50 an hour. That is still below what anti-poverty campaigners say should be the real living wage needed to meet everyday costs. The voluntary living wage is £9.75 in London and £8.45 elsewhere as set by the Living Wage Foundation. It reckons a fifth of UK workers are still not paid enough. But the good news is 3,000 employers have joined the voluntary scheme, including almost a third of the FTSE 100.
Gender pay gap rules come into force
There is still a 9.4% gap in average pay between male and female full-time employees. But companies will come under pressure to address the discrepancies when new rules come into force in April requiring large employers to report their gender pay and gender bonus gaps.
More funding for apprenticeships
Another change for employers this year is the apprenticeship levy, a tax on businesses designed to fund more work-based training schemes. It is high time young people in the UK are given more routes into decent careers and expanding apprenticeships could help tackle skills shortages in sectors such as construction. But employer groups have voiced legitimate concerns that the government risks going after quantity and not quality with its target of 3m apprenticeships by 2020. There are warnings the levy may prompt unscrupulous employers to rebadge existing jobs as apprenticeships to meet training targets and recoup the costs of the charge.
Faint hopes for first-time buyers
There was no house price crash after the referendum, but growth eased, dampened by Brexit-related uncertainty and stamp duty changes. The market is expected to slow further in 2017 and some forecasters predict prices could fall. That outlook will bring homeowners out in cold sweats but for anyone who has been trying to get on the housing ladder, a moderation in prices is long overdue.
There is also a slither of hope that a government drive to address the UK’s housing shortage could help first-time buyers. Still, given past experience of unfulfilled housebuilding promises, they should not hold their breath, and the uncertain economic outlook may make builders nervous about taking on big projects.
The weak pound will help exporters
There is little sign of it yet, but in theory the weak pound should help UK exports by making them cheaper in overseas markets. If the government wants UK businesses to capitalise on the drop in sterling it will need to give them more support to crack new markets such as one-to-one mentoring and funding to attend trade fairs.
Interest rates will stay low
The Bank of England faces a trade-off between supporting growth and jobs on the one hand and keeping inflation in check on the other. The Bank has said there are limits to how far it will tolerate rising inflation but most of the signals suggest that under Mark Carney it is more worried about jobs.
So it is bad news if you are saver, but for businesses and mortgage holders, 2017 will see continued support from rates staying at, or close to, their all-time low of 0.25%.
Calls for government help will grow louder
The Bank stepped in with a package of post-referendum support for the economy, but the government has been more hands off. Carney and other central bankers around the world have repeatedly urged politicians to do their share of the heavy lifting to bolster their economies with spending on infrastructure and structural reforms.
If Hammond’s maiden autumn statement was anything to go by, he is not ready to pick up the baton. Far from abandoning Osborne’s austerity drive, the new chancellor merely pared it back and he remains fixated on cutting the deficit.
Yet, there are growing signs that voters here and abroad are fed up with the status quo and as inflation starts to erode UK living standards, Theresa May’s government will come under more pressure to deliver her promise of an economy “that works for everyone”. She and her cabinet will ignore people’s frustrations at their peril.
This article was written by Katie Allen, for theguardian.com on Sunday 1st January 2017 12.36 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010