UK growth post Brexit vote to taper off in 2018

Economic growth in the UK post-Brexit vote will come off its highs over the next two years as the future relationship with the EU is established and higher inflation sets in, according to the British Chambers of Commerce (BCC).

The business group upgraded its GDP forecast for 2016 from 1.8% to 2.1% after the economy proved resilient, with third quarter growth at 0.5%, after the UK voted to leave the European Union.

BCC however warned that the current level of economic momentum is set to slow over the next two years as continued uncertainty around the UK’s future relationship with the EU and higher inflation are expected to dampen growth in the medium-term.

The GDP forecast for 2017 was upgraded slightly from 1.0% to 1.1%, marking the weakest annual rate of growth since the financial crisis. Expectations for 2018 were downgraded from 1.8% to 1.4%.

Head of Economics at the BCC Suren Thiru said: “Higher inflation and continued uncertainty over Brexit will weigh on the UK’s growth prospects, with consumer spending and business investment likely to be hardest hit. Average earnings should hold steady but inflationary pressures are expected to erode real wages, which will hit the spending power of households.”

The organisation does not however expect the economy to enter into a recession.

Inflation is expected to breach the Bank of England’s 2% target next year, with a forecast of 2.1% in 2017 and reaching 2.4% in 2018.

Public sector borrowing is also expected to be £15.2bn higher over the next three years than predicted by the Office for Budget Responsibility at the 2016 Autumn Statement.

Director General of the British Chambers of Commerce Dr Adam Marshall said: “In the absence of a clear road ahead, many companies have been adopting a ‘business as usual’ approach in the months since the referendum, which has kept conditions buoyant this year and prevented a sharp slowdown in growth.

"It is imperative that government do all it can to help UK businesses overcome risk and take advantage of opportunities. Ministers should start by clarifying the future status of existing EU workers as soon as possible, to end the insecurity now facing employees and businesses alike."