UK economy to remain sluggish

The Confederation of British Industry (CBI) has predicted that economic growth, which it describes as “timid” for this year, will remain “steady but sluggish” in 2018 with “tepid” growth.

According to the CBI, gross domestic product (GDP) will grow at 1.5 per cent in 2018 before dropping to 1.3 per cent in 2019 amid Brexit-related uncertainty and a squeeze on wages.

A spokeswoman said the business group expects household spending to remain under pressure from the growing squeeze on wages as Brexit continues to put pressure on business investment. However, she added that there should be more support from net exports, which have benefitted from the lower pound and a resurgent global economy.

The CBI’s statement said that the Government’s newly-announced Industrial Strategy has the potential to boost living standards but, warned that, the plan needs “consistency and determination” to make it a long-lasting success. This is because the UK economy is on track for its worst performance since 2009 after growing slower in the third-quarter than it did in the same period a year ago.

Following the Bank of England’s interest rate rise in November, the group also said it expects the Bank to raise interest rates three times over the next two years, reaching 1.25 per cent by the third quarter of 2019. It also predicts that the living standard will remain under pressure for the same length of time and forecasts that inflation, as measured by the consumer prices index (CPI), will have peaked at three per cent in October 2017 before gradually easing back.

The CBI’s forecasts are based on the Government achieving an agreement with the EU on a time-specific transition period for Brexit in early 2019. As the group points out, a disorderly outcome from Brexit negotiations could disrupt the economy and financial markets.