Thursday 21 September 2017

Pace of growth in the UK economy set to increase next year says think tank

UK chancellor Philip Hammond
UK chancellor Philip Hammond
Colm Kelpie

Colm Kelpie

The pace of growth in the UK economy is set to strengthen marginally next year even as the country runs closer to the EU exit date of 2019.

Forecasters predict a slight jump in GDP in 2018 on the back of strong exports and rising wages in a boost to Chancellor Philip Hammond and the Conservative Party government.

The UK suffered what experts say was a "notable slowdown" in the first half of this year, registering growth of just 0.3pc.

But the National Institute for Economic and Social Research (NIESR) said the economy will rise by 1.7pc this year and grow at a rate of 1.9pc in 2018.

Rising inflation, which it is feared will put a squeeze on consumer confidence and spending, will peak at 3pc at the end of this year, before falling back to 2pc at the end of 2019. It is currently running at 2.6pc. "The economy has slowed each year since 2014 and according to our forecast, 2017 will mark the trough for GDP growth," the think tank said in its latest assessment.

"Thereafter, we envisage a modest recovery that takes economic growth to a level that is close to potential."

The NIESR is now also predicting that the Bank of England will raise interest rates next year. It said it has brought it forward from the second quarter of 2019, to the first three months of next year. "This will be the first policy rate increase in nearly eleven years. This rate increase should not be seen as a tightening in policy, but instead as a modest withdrawal of some of the additional stimulus that was injected into the economy after the 2016 EU referendum."

The Bank of England is due to release its updated forecasts for the economy tomorrow.

Any strengthening in the economy will be good news for Irish exporters selling their wares into the UK market.

However, the effect on the economy once the UK pulls out of the EU remains unknown, and economists fear the impact will be broadly negative.

Meanwhile, smaller British manufacturers are in the midst of an export-led "sweet spot", with output increasing at the fastest rate in seven years, according to an industry survey.

The Confederation of British Industry's (CBI) quarterly report on small and medium-sized manufacturers showed export orders increased at the strongest pace since 2011, chiming with a new survey that highlighted strong demand from abroad.

Supporters of Britain's decision to leave the European Union have said that sterling's fall since last year's referendum will help the economy by making exports more competitive.

However, growth in the first half of 2017 slowed sharply as consumers felt the pinch of inflation, caused in part by the pound's fall against other currencies.

"Firms are clearly in an exporting sweet spot, able to exploit the competitiveness gains from a low exchange rate and a firm global backdrop," said CBI economist Alpesh Paleja. (Additional reporting Reuters)

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