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British Chambers of Commerce forecasts challenges to UK growth in 2017

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Staff Writer | December 14, 2016
Growth in the UK economy in 2016 is set to be stronger than thought, but the momentum is unlikely to be maintained into 2017, the British Chambers of Commerce (BCC) forecast.
British economy
Britain   Inflation is forecast to rise
The BCC, the industry representative body with member firms which employ around 5 million workers, increased its forecast for growth in 2016 to 2.1 percent, from 1.8 percent in the previous quarterly forecast in September.

The improvement in the forecast is supported by better-than-expected growth figures for the third quarter of this year, with growth recorded at 0.5 percent.

However, the forecast growth figure for 2017 was reduced to 1.0 percent from 1.1 percent, well below the trend UK growth of 2-2.5 percent. It would also be the lowest annual growth since the financial crisis, if it is correct.

The expected negative effects of the Brexit vote have not been felt by businesses as yet, with some benefiting from a sharp reduction in sterling on foreign exchange markets in the wake of the June 23 vote.

Suren Thiru, BCC head of economics, said "We have upgraded our growth forecasts for 2016 and 2017, but the near-term outlook for the UK economy remains challenging, with the recent resilience in growth expected to weaken."

"Higher inflation and continued uncertainty over Brexit will weigh on the UK's growth prospects, with consumer spending and business investment likely to be hardest hit. Average earnings should hold steady but inflationary pressures are expected to erode real wages, which will hit the spending power of households," Thiru analyzed.

Inflation is forecast to rise from the current 0.9 percent (latest figures, for October) to 2.1 percent next year and 2.8 percent in 2018.

As a result, higher inflation is expected to curb household consumption, the current main driver of growth, and GDP in 2018 is forecast to grow by 1.4 percent, down from 1.8 percent forecast in the last quarterly report.