The UK economy started the year strongly with an acceleration in January, according to estimates by an influential economic think tank.
GDP grew by 0.7 per cent in the three months to January, according to the National Institute of Economic and Social Research (Niesr).
That compares to confirmed growth of 0.6 per cent in the fourth quarter of 2016, suggesting the economy’s output lifted during the month.
Oriol Carreras, research fellow at Niesr, said: “Growth was driven by robust consumer spending combined with a pickup in output in production industries. This represents the first expansion of production, on a three month on three month rolling basis, since September 2016.”
The continued pace of consumer spending has surprised many economists, including at the Bank of England (BoE). The Bank recently revised up its forecasts for 2017, after consumer spending kept the economy growing at the same rate as before the EU referendum vote.
The Bank now expects consumers to dip into their savings, with the ratio of savings to total household resources falling to the lowest level on record.
However, Niesr still expects growth to slow over the course of this year as the feed-through of higher prices dents the value of wages.
Carreras said: “Despite our estimates indicating a strong start of 2017, we expect economic growth to soften to 1.7 per cent this year as rising consumer price inflation weighs on consumer spending.”
Since the EU referendum the value of sterling against the US dollar has fallen by around 16 per cent, resulting in a surge in factory gate prices which grew by 2.7 per cent in December.
The rise materials prices is almost universally predicted by economists to result in consumer price inflation significantly overshooting the BoE’s two per cent target within the next year.