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Switch from consumer to export-led growth forecast

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The slump in sterling should prompt a ‘significant readjustment’ of the UK economy away from consumer spending towards exports, although growth will be slower next year and inflation is set to rise, says the EY ITEM Club winter forecast.

“We now expect the impact of Brexit on the UK economy to be shallower, but more prolonged than we did in October. However, there is a sea change coming over the next three years. The fall in the pound will force the economy to be less reliant on consumer spending, leaving growth heavily dependent upon trade performance,” said Peter Spencer, chief economic advisor to the club. Forecasts for gdp growth in 2017 have been raised to 1.3 per cent whilst 2018 looks tougher with growth forecast to slow to 1 per cent.

Exports are set to increase by 3.3 per cent this year and 5.2 per cent in 2018. Fuelled by rising import costs, Inflation is predicted to rise to 3.1 per cent by the final quarter of 2017, before easing back to 2 per cent.

Nick Gomer, office managing partner at EY in Cambridge, added: “Whatever the outcome of the Brexit negotiations, there are clear indications that the fall in the pound and the UK’s exit from the EU will entail a change in the structure of the UK economy. The onus will be on businesses to adapt to the slowing domestic economy by seeking opportunities overseas.”

Last Updated ( Thursday, 26 January 2017 08:34 )