LONDON — The UK economy is set for a persistently slow pace of growth over the next two years as it negotiates Brexit, according to the latest economic forecast from the Confederation for British Industry (CBI).
The business group, which represents over 190,000 UK businesses, has marginally revised up its growth forecast to 1.6% for 2017 and 1.4% in 2018 compared with the previous forecast of 1.3% and 1.1% respectively.
Despite the upwards revision — which follows stronger than expected growth in the latter half of 2016 — the predicted growth rates represent half the average pace of growth between 2013 and 2016.
The CBI said that ongoing political instability and uncertainty surrounding Brexit talks provide significant economic headwinds.
The group expects less support from household spending, with growth slowing in 2017 (from 2.8% in 2016 to 1.7%) and 2018 (to 0.7%). Real earnings are expected to remain stagnant due to rising inflation. Inflation on the CPI measure is expected to average at 2.7% in both 2017 and 2018, below the rate of wage growth at 2.4% in 2017 and broadly in 2018 (2.8%).
The forecast — which was carried out before the June 8 General Election — said that domestic demand will play less of a role in driving growth than in previous years, but net trade will provide additional support as exports are lifted by the fall in the value of the pound since the Brexit vote.
“We must get Brexit right”
Carolyn Fairbairn, CBI Director-General, said: “The UK economy has proved hardy in recent times, with firms up and down the UK getting on with what they do best by investing and creating jobs. Growth should be steady, if restrained, over the next couple of years as the pace of the economy shifts down a gear.”
She added: “While the country’s exporters should emerge as a real catalyst of growth, rising inflation and stubbornly low wage growth mean that people are already starting to feel the pinch. Tighter purse strings mean slower household spending growth and uncertainty is likely to weigh on the minds of those making major investment decisions.
“Now Brexit negotiations are beginning, it will be essential that negotiators on both sides remain cool, calm and collected, in order to make rapid progress on what a successful new relationship will look like. Putting trade, jobs and people first by agreeing transition arrangements and guaranteeing EU citizens’ rights early on would set the right tone.”
“But the less likely a deal starts to look, the harder it will be for firms to recruit and retain talent as well as push the button on big investment decisions. We must get Brexit right.”