Lacklustre 2017 but stronger UK growth expected after next year

According to EY

UK growth will continue to struggle this year and next, as consumer spending feels the squeeze from rising inflation and muted earnings growth. However the economy’s medium term outlook is now looking stronger than it did three months ago, with the general election result increasing the likelihood of a more business friendly Brexit, says the latest EY ITEM Club Summer Forecast.

The EY ITEM Club has downgraded its UK GDP forecast for 2017 to 1.5 per cent, down from the 1.8 per cent it was predicting in its April report, but is more confident about growth prospects for 2019 and 2020. The report says that the general election result has increased the chances of a Brexit transition arrangement, followed by a free trade agreement, which should provide greater certainty to help stimulate business investment, as well as a looser fiscal stance. Combined with the expectation that inflation will fall back to the target by the end of next year, the EY ITEM Club is now predicting GDP growth of 1.3 per cent in 2018 and 1.8 per cent for 2019 – up from the 1.2 per cent and 1.5 per cent respectively that was previously forecast

Peter Spencer, chief economic advisor to the EY ITEM Club, comments: “Although the general election has clouded the issue, it should result in a softer Brexit, meaning a transition arrangement, leading to a comprehensive free trade agreement further down the time-line. The outlook for this year has deteriorated since our spring forecast, but a softer Brexit should improve the medium term outlook - especially in sectors like the motor industry where investment has been held back by Brexit uncertainty.”

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