Monday 13 February 2017 12:33 pm

Brexit not as bad for the UK as we thought, says EU, as it revises country's growth figures upwards

The European Commission has become the latest body to lift its UK growth forecast, admitting today that the impact of Brexit might not be as bad as it originally feared.

EU forecasters now expect the UK economy to expand 1.5 per cent this year, up from their prediction of just one per cent growth, made back in November.

"The impact of the vote, by the UK to leave the EU in the referendum held on 23 June 2016, on growth has yet to be felt," the report read.

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The EU's economists follow in the footsteps of the Bank of England, which recently hiked its 2017 growth forecast to two per cent – significantly higher than the 0.8 per cent it predicted in the aftermath of last summer's referendum.

Britain's economy defied expectations last year, with official figures pointing to a two per cent expansion in GDP for 2016 – making the UK the fastest-growing G7 nation. Both the IMF and OECD were forced to make screeching U-turns, having predicted a post-Brexit vote slump.

Despite its upward revision for 2017, the EU has kept its outlook for 2018 unchanged at 1.2 per cent.

Chart of UK GDP growth and forecasts

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The report from Brussels still believes a slowdown could be around the corner. The impact of delayed investment decisions – due to referendum uncertainty – will become more apparent in 2017, it says.

Today's report also marks the first time in almost a decade the Commission has predicted all EU countries are expected to grow during its forecasting period, which is until 2018 in this instance.

The European Commission edged up its forecasts for the euro area. Its 2017 prediction was lifted to 1.6 per cent, up from 1.5 per cent, and its 2018 prediction to 1.8 per cent, up from 1.7 per cent. Meanwhile, growth forecasts for the EU as a whole were lifted to 1.8 per cent for 2017, up from 1.6 per cent, and maintained at 1.8 per cent for 2018.

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Inflation is also expected to pick up in the not-too-distant future, with EU-level forecasts for 2017 and 2018 of 1.8 per cent and 1.7 per cent respectively, compared with 0.3 per cent in 2016. In the UK, inflation is expected to rise to 2.5 per cent in 2017 and 2.6 per cent in 2018.

"The economic recovery in Europe continues for the fifth consecutive year," said Valdis Dombrovskis, the Commission's vice president in charge of financial services, who recently jetted to London to meet with City chiefs. "In these uncertain times, however, it is important that European economies stay competitive and able to adapt to changing circumstances.

"This requires continued structural reform effort. We also need to focus on inclusive growth, ensuring that the recovery is felt by all."

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Pierre Moscovici, commissioner for economic and financial affairs, taxation and customs, added: "With uncertainty at such high levels, it's more important than ever that we use all policy tools to support growth."

Meanwhile, over the weekend, European Commission President Jean-Claude Juncker told German media he would not be seeking a second term in his role and planned to step down when his term ran out in 2019.