The British Chambers of Commerce has upgraded its UK GDP growth forecast for 2017 from 1.1 per cent to 1.4 per cent.
The picture is less sunny in the medium term however with the BCC downgrading its expectations slightly for 2018 from 1.4 per cent to 1.3 per cent, and forecasting a modest 1.5 per cent growth in 2019.
Economic growth is expected to remain ‘well below its long-term average over the forecast period’, according to the BCC.
Consumers like these on Oxford Street may rein spending in a touch as inflation squeezes their budgets, according to the BCC.
The business advocacy group’s upgraded forecast for 2017 was driven by an upward revision to growth data in the final quarter of 2016 and the resilience of British consumers, who continued to deliver stronger than expected levels spending.
A slight improvement in the outlook for investment and trade versus previous forecasts was also factored in to its projections, the BCC said.
The statement from the BCC comes on a day when the pound has dropped in value significantly, which will only add to the inflationary pressure in the economy.
The BCC warned that inflation is forecast to breach the Bank of England’s 2 per cent target as soon as this quarter, with companies facing higher input costs which will be passed through to consumers.
While companies’ earnings are expected to hold steady, inflation is likely to erode real wages and as result consumer spending, which is the driving force of the economy, may ‘slow substantially’ from growth of 1.6 per cent in 2017, to 0.9 percent in 2018 and 1.1 per cent in 2019.
One of these fivers may buy you slightly less if inflation rises above 2 percent as forecast
‘Thanks to the hard work of businesses and the continued resilience of the redoubtable British consumer, the UK economy is likely to grow somewhat more strongly than we’d previously expected during 2017,’ said Adam Marshall, director general of the BCC.
‘Yet with several years of unspectacular growth ahead, coupled with inflationary pressures and the uncertain outcome of Brexit negotiations, it has never been more important to tackle the long-standing constraints that limit business confidence and growth here at home.’
Director general of the BCC Adam Marshall
Head of economics at the BCC Suren Thiru added: ‘We have upgraded our growth forecast for 2017, driven by revisions to official GDP data and a stronger than expected end to 2016 for the UK economy.
‘That said, the UK economy is still set to enter a more subdued period, with growth expected to remain materially below trend over the near term.’
‘The resilience in consumer spending, a key driver of UK growth, will slowly dissipate over the coming months as higher inflation and muted wage growth combine to erode consumer spending power,’ Thiru added.
‘The UK’s trade position will improve across the forecast period supported by the depreciation of Sterling and an improving outlook for the global economy.’