An economist's forecast for 2018

19 January 2018

What lies in store for the year ahead? CIPS chief economist John Glen predicts procurement’s coming opportunities and challenges – and adds a bit of hope

For businesses, Brexit dominated 2017. The year ended with negotiations for the UK’s exit from the EU moving to the next stage, after three key issues were eventually resolved.

The first of these was the financial settlement the UK has when leaving the EU, the ‘divorce settlement’. The UK government has agreed to a payment of around €50bn, which could increase to nearer €100bn as negotiations continue.

The border issue with the Republic of Ireland was resolved by agreeing to frictionless trade. Goods and services will be allowed to move without physical border checks.

However, this does not address the key issue: tariffs. Tariff-free trade across this border would create free trade routes for goods and services in and out of the EU, which would be resisted by the UK’s progress lobby. Future negotiations on this issue will be a key barometer of the on-going trade relationship between the UK and the EU.

Finally, there is the issue of EU citizens’ rights. EU workers who have been here for more than five years will have the right to remain, and workers’ rights during any transition period will be protected by legislation.

However, the much more important development is that EU workers are choosing to leave the UK, while the number arriving is declining significantly. This is causing labour shortages, especially in manufacturing, healthcare and agriculture. It will be vitally important that the UK’s indigenous labour force is developed to fill the gap.

Brexit negotiations will be long and complex. This introduces the possibility of a transition period post March 2019, where the UK would effectively remain a non-voting member of the EU and retain access to the single market and the customs union, most likely for two years. This will allow trade agreements to be negotiated before the final exit. A longer transition period might see a second vote on Brexit. Polls suggest public sentiment may be moving in the direction of reversing the decision.

For procurement and supply, 2018 will be a year in which big data, predictive analytics, AI and the Internet of Things will increase the connectivity of the world in which we operate and create opportunities to make supply chains more efficient, transparent and resilient.

Advances in these areas create greater opportunities for the procurement profession but also require it to develop in order to harvest the benefits.

From an economic perspective, 2017 ended with many stock markets at record levels, a global economy that appeared to be finally recovering from the 2008 recession, and the EU showing signs of growth. In the UK, the decline in the value of sterling provided a boost to export competitiveness.

Interest rates remain at historically low levels and while there’s talk of rates increasing in 2018, any rise will be modest.

The key challenge for the UK economy in 2018 will be dealing with the uncertainty created by Brexit and ensuring investment in capital equipment, public infrastructure and skills so that the UK economy can prosper irrespective of the nature of its relationship with the EU.

 

These are my predictions for 2018:

1. Growth in emerging markets will continue to recover, with average growth of above 5%

2. UK and US interest rates may increase, but will remain low

3. Key geopolitical risks will revolve around US foreign policy – most notably in North Korea – and US trade relations – most notably with China

4. The UK’s growth rate will remain below 2%

5. UK businesses with significant trade in the EU will start to move some of their activity onto mainland Europe in early 2018, as a hedge against a hard Brexit

6. A Brexit transition period of two years will be negotiated

7. Theresa May will remain prime minister

8. The pound will trade between €1.15 and €1.20

9. The prospect of a softer Brexit will have been established

10. And finally… England will win the World Cup.

LATEST
JOBS
Coventry, West Midlands
£44,000 to £56,000
Ofqual
Coventry, West Midlands
£44,000 to £56,000
Ofqual
SEARCH JOBS
CIPS Knowledge
Find out more with CIPS Knowledge:
  • best practice insights
  • guidance
  • tools and templates
GO TO CIPS KNOWLEDGE