Economic growth has been strong in recent years as the United Kingdom emerged from recession to grow above long-run averages. Robust growth was accompanied by low inflation and a robust labour market as employment increased rapidly while price and wage pressures were subdued. However, the external position deteriorated. The strong performance was driven by a number of internal factors. Accommodative monetary policy, increased resilience of the banking sector, an efficient and competitive labour market, increased corporate profitability and growing confidence among households and firms supported growth. Economic growth is now on a firm trajectory. After peaking in 2014 at 2.9 %, growth moderated to 2.3 % in 2015 and is expected to settle at rates of 2.1 % in 2016 and 2017. Domestic demand, in particular private consumption, is projected to continue to drive growth. Business investment has been strong and is expected to continue growing solidly. However, net exports are expected to still detract from growth.
The United Kingdom is experiencing no macroeconomic imbalances. High household sector debt and elevated house price levels as well as the large current account deficits may constitute vulnerabilities. However, household balance sheets are strong in aggregate and both household debt levels and house price growth have fallen since 2014. Moreover, risks associated with the large current account deficit are mitigated by a favourable institutional framework and low foreign currency liabilities, and the deficit is expected to decline as adverse cyclical conditions unwind. Several government initiatives have yet to exert a material impact on the imbalance between housing supply and demand.
Read a complete analysis of the UK's economy in the country report 2016 [2 MB]
2015 recommendations in brief
The Commission has made three country-specific recommendations to the United Kingdom to help it improve its economic performance. These are in the areas of: public finances; housing market; labour market.