EY Item Club says uninspiring economy is ‘chugging along’ as inflation continues to drop

The UK economy is set for another year of uninspiring growth in 2018, according to the latest forecasts from the EY Item Club.

This week’s first-quarter GDP figures are expected to show growth of just 0.2%-0.3%, according to EY Item Club economists, mainly due to the severe weather the hit the country at the end of February and beginning of March. This compares to quarter-on-quarter growth of 0.4% in the final three months of 2017

The forecasters have cut their estimate for full-year growth from 1.7% in their winter prediction to 1.6%, despite an expected pick-up to 0.5% quarter-on-quarter growth in the second three months of the year. For 2019, they have kept their estimate for GDP growth at 1.7%.

Howard Archer, chief economic advisor to the EY Item Club said: “The UK economy is chugging along at a fairly steady but uninspiring rate. On the surface, the outlook appears stable. Inflation, which impacted consumer spending last year, continues to drop and we expect a tight jobs market to deliver some uptick in pay growth.

“Significantly, a transitional Brexit agreement between the UK and EU has been agreed which should also bring some certainty to businesses and support investment, although it still needs to be ratified. However, these factors may be offset by rising interest rates, a recovery in sterling’s value and still appreciable Brexit uncertainties bringing new headwinds over the year.”

The EY Item Club expects two interest rate rises in 2018, with another two the following year.

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