THE UK economy is forecast to grow in coming quarters at only half the pace of recent times as inflation fuelled by the Brexit vote squeezes household incomes and weighs on consumer spending.
The Confederation of British Industry, publishing its forecasts today, also warns companies’ ability to retain and recruit the staff they need and business investment will be in jeopardy if it appears from Brexit
negotiations that a deal is less likely.
It has been joined by other business groups in warning about the risks for UK businesses and the economy in the Brexit negotiations. Business organisations
emphasised their belief that guaranteeing the rights of workers from other European Union member states who are already in the UK is a crucial early step in talks.
As Secretary of State for Exiting the European Union David Davis and EU chief Brexit negotiator Michel Barnier launched talks yesterday, business organisations flagged the UK’s continuing need for workers from other EU member states.
The CBI says in its forecasts that the pace of UK growth has shifted “down a gear”. It notes the average quarterly expansion of
0.3 per cent it is forecasting over the second half of this year and through 2018 is “half the average pace of growth from 2013 to 2016”.
The UK economy grew by just 0.2 per cent in the first quarter. The National Institute of Economic and Social Research has estimated, in light of recent indicators, that UK gross domestic product in the March to May period would have been up just 0.2 per cent on the preceding three months.
The CBI forecasts growth of 1.6 per cent for 2017, weaker than the far-below-trend
1.8 per cent expansion in 2016. It notes this 1.6 per cent projection is up from its previous forecast of 1.3 per cent in November because of stronger-than-expected expansion in the second half of last year.
The CBI projects growth of 1.4 per cent in 2018. It adds: “The CBI’s view of the outlook remains unchanged compared to the previous November forecast, with the same average quarterly growth of 0.3 per cent from the second half of this year as in November.”
The CBI predicts UK household consumption growth will slow sharply from 2.8 per cent in 2016 to just 1.7 per cent this year, and then to 0.7 per cent in 2018.
It believes, given above-target inflation, that the Bank of England will raise UK base rates by a quarter-point from their record low of 0.25 per cent in the third quarter of next year.
Annual UK consumer prices index inflation has surged from 0.3 per cent in May 2016, ahead of the Brexit vote, to 2.9 per cent last month. This rise has been fuelled in large part by the pound’s tumble in the wake of last June’s Brexit vote.
While predicting a boost to exporters from the weak pound, the CBI adds: “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.”
CBI director-general Carolyn Fairbairn said: “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.”
David Watt, executive director of the Institute of Directors in Scotland, declared transitional arrangements were “essential” because businesses must be given time to adapt.
He added: “An immediate goal to pursue is a guarantee for EU citizens already in the UK, as our members are reporting concerns about whether essential staff will stay.”
Adam Marshall, director-general of British Chambers of Commerce, said: “Swift agreement on citizens’ rights would remove a highly emotive and politicised issue from the complex road ahead, while at the same time ending a year-long source of uncertainty for individuals, communities and employers alike.”
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