According to the latest report from the Ernst & Young (E&Y)(
www.ey.com/uk/en/home) Item Club, the UK has shown “greater resilience than many had anticipated” since the EU referendum vote.
However, a slowdown in consumer spending (due to higher inflation and falling business investment) is expected to result in “much slower growth rates” over the next couple of years. In its Autumn Forecast, the EY Item Club said it expects GDP growth of 1.9% for this year, supported by strong consumer spending (up by 2.5%) and low inflation (0.8%).
However, with inflation forecast to grow to 2.6% in 2017 before easing back to 1.8% in 2018, consumer spending is expected to slow to 0.5% in 2017 and 0.9% in 2018.
Meanwhile, “uncertainty around the UK’s future relationship with the EU is likely to weigh on corporate confidence”, the report claims, with business investment falling by more than 2% in 2017, after a decline of 1.5% this year. As the UK’s trading relationship with the EU becomes “clearer”, growth in capital spending is forecast to recover to 0.3% in 2018.
As a result, the Item Club forecasts GDP growth of 0.8% in 2017 and 1.4% in 2018. It expects exports — supported by a weak pound — to increase by 4.5% in 2017 and 5.6% in 2018.
Net exports are forecast to add 0.8% to GDP next year, accounting for almost all of the economy’s expected growth.