The UK economy will grow at its slowest pace since the 2009 recession this year as soaring inflation and lacklustre wage growth bring an end to Britain’s consumer spending boom, a report has warned.
A forecast by the Centre for Economics and Business Research, a consultancy, shows growth pulling back sharply to 0.8 per cent in 2017 – less than half the 1.8 per cent expected for 2016.
The prediction warns a surge in inflation to 2.7 per cent this year will end the spending spree that has helped the economy put in a resilient performance since the Brexit vote.
Dampened investment by businesses fearful over the impact of Brexit will also hold back the pace of expansion, the consultants said.
But the report offered some cheer as it said the weak pound will boost manufacturers as it discourages UK firms from buying abroad and makes British goods cheaper for foreign buyers.
The consultancy also said that while the jobs market may be past its peak, it would hold up well with the unemployment rate set to remain below 2015 and 2014 levels, at 5.3 per cent.
The report comes as a reminder of the challenges facing the economy after recent better-than-expected figures.
Industry surveys last week pointed to a robust end to 2016, with the services sector purchasing managers’ index jumping to a 17-month high in December.
‘Difficult year’
Nina Skero, managing economist at the consultants, said the UK was set for a “difficult year”.
“In 2017, new challenges such as rising inflation will combine with existing ones including weak wage and productivity growth,” she said.
“A simultaneous consumer and business investment slowdown will leave the economy without two key growth drivers, but there are some reasons for cautious optimism,” she added.
The consultants said inflation – currently 1.2 per cent – will be sent higher by rising import costs caused by the weak pound and higher oil prices, while it forecasts a 3.9 per cent fall in business investment over 2017.
It also predicts that after slowing this year, growth will pick up “only marginally” throughout 2018 and 2019 at 1.1 per cent and 1.8 per cent respectively.
Despite a fillip for trade from the Brexit-hit pound, the report cautioned a more substantial exports boost may be “some way away”.
“Relatively few British goods and services compete primarily on price and a shift towards such exports will take time,” it said.
– (PA)
