A “business as usual” approach from UK businesses has kept the economy steady since the EU referendum, according to the British Chambers of Commerce (BCC), as they revised up growth for 2016 and 2017.
The business lobby group’s forecast of this year’s annual GDP growth rate has been upgraded to 2.1 per cent, as firms continued to invest and household consumption stayed relatively strong after the Brexit vote.
Dr Adam Marshall, BCC director general, said: “Many companies have been adopting a ‘business as usual’ approach in the months since the referendum, which has kept conditions buoyant this year and prevented a sharp slowdown in growth.”
The UK’s third-quarter GDP growth surprised economists, causing upward revisions to full-year predictions. Growth in 2017 has also been revised upwards slightly, to 1.1 per cent.
However, investment uncertainty and higher inflation following the devaluation of sterling in the aftermath of the EU referendum have prompted the BCC to downgrade its forecast of GDP growth for 2018 from 1.8 per cent to 1.4 per cent.
Inflation is set to rise to 2.1 per cent and then 2.4 per cent in 2017 and 2018 respectively, says the BCC. This is significantly lower than the Bank of England’s forecasts, which predict a peak of 2.8 per cent next year.
“Higher inflation and continued uncertainty over Brexit will weigh on the UK’s growth prospects, with consumer spending and business investment likely to be hardest hit,” said Suren Thiru, head of economics at the BCC.
“Average earnings should hold steady but inflationary pressures are expected to erode real wages, which will hit the spending power of households,” he added.
The BCC forecasts show growth in household consumption is set to collapse from 2.7 per cent in 2016 to 0.6 per cent in the next two years, as the devaluation of sterling makes imported products more expensive.
The BCC’s GDP forecasts broadly reflect the government’s official data, published by the Office for Budget Responsibility, which say that growth in 2016 will be 2.1 per cent, followed by falls to 1.4 per cent and 1.7 per cent in 2017 and 2018 respectively.
The latest average of independent forecasts collected by the Treasury puts GDP growth for 2017 significantly lower at 1.1 per cent, after 2.0 per cent expected growth this year.