The UK economy has received another forecast upgrade as the British Chambers of Commerce (BCC) becomes the latest to predict growth will be faster than previously expected this year.
The economy will expand by 1.4 per cent this year, the BCC says, faster than the 1.1 per cent rate predicted in December.
The upgrade in growth follows strength in household spending as well as more accurate data from the Office for National Statistics showing the economy accelerated at the end of 2016.
However, the BCC then expects growth to slow further in 2018 as inflation eats into consumers’ spending power and business investment contracts by 0.5 per cent.
The BCC’s expectations are significantly weaker than the growth expected by the Office for Budget Responsibility (OBR) and the Bank of England, although the upgrade this year mirrors the pattern of a stronger start to 2017 than had been expected.
The latest forecasts from the OBR, the government’s Budget watchdog, show higher growth of two per cent in 2017, before a dip next year and a gradual acceleration thereafter.
The BCC expects inflation to peak next year at 2.7 per cent in 2018, later than the forecasts of the Bank of England, which sees inflation reaching that level by the end of this year.
The UK economy has surprised economists since the EU referendum in June, with consumers continuing to power the economy. However, forecasters differ on the extent to which consumer spending will dip as inflation increases.
Suren Thiru, head of economics at the BCC, 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.”
The BCC reiterated its call for government to help businesses facing higher taxes as the UK starts the official process of leaving the EU, but criticised the lack of growth-boosting investments in chancellor Philip Hammond’s Budget.
Last week’s Budget was a “missed opportunity” for the government to boost infrastructure spending, said Adam Marshall, BCC director general.
He added: “More thoughtful and radical moves to improve the business environment would give businesses – and GDP forecasts – a boost during a critical and complex time.”