US banking giant JP Morgan has upgraded its forecasts for growth as the UK economy sustained its momentum from the end of 2016.
Economists at the bank revised up their prediction of GDP growth from 1.7 per cent to 1.9 per cent this year. This would represent a slight acceleration in the economy’s expansion from the 1.8 per cent growth recorded in 2016.
The upgrade was driven by better than expected findings of economic surveys, including the most recent consensus-beating services purchasing managers’ index, as well as an improved outlook for the Eurozone.
Improved sentiment among businesses has led the bank to up its prediction for business investment, while it expected a bigger boost to trade after the fall in sterling since June.
The bank joins a host of economists to revise up UK GDP growth, including the Bank of England and the government's budget watchdog, the Office for Budget Responsibility.
In a note economists at the bank said: “Our sense is that a stronger global impulse is playing a significant role in mitigating some of the drags coming from domestic demand at the moment.”
Resilient consumer spending has been one of the most important supports to UK economic growth over the past nine months, as output stayed strong in the second half of the year. However, JP Morgan still predicts a slowdown in consumption growth to one per cent by the middle of the year.
Falling real wages will weigh on consumption, the bank’s economists said, as inflation drags on spending power.
The rise in inflation could complicate the Bank of England’s monetary policymaking. Consumer price index inflation rose to 2.3 per cent in February, leaving little leeway before the Bank of England hits its forecast peak of 2.7 per cent.
Economists at JP Morgan said: “Together with the stronger global outlook, this could encourage some of the shy hawks on the MPC to vote for higher rates at the upcoming May meeting.
“But we continue to expect the majority will have an eye on the weak path for real incomes this year, and signs from the latest data that a consumer slowdown is already under way.”