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UK economic growth downgraded

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The indecisive General Election result will hit confidence and dampen GDP growth, according to consultancy group the Centre for Economics and Business Research.

Meanwhile, uncertainty over Brexit is holding back business investment, which will also restrain economic growth.

The group revised its full year forecast for the UK economy lower by 0.4% for 2017 and 2018, but said growth may recover after that. It now expects the economy to grow by just 1.3% this year and 1.2% in 2018.

Lower consumer spending and business investment will be behind the slowdown in the short-term, but confidence should rebound if a deal is agreed with the rest of the EU. As such, the group’s forecasts for 2019 and 2020 are higher at 1.6% and 1.9% respectively.

The group said the Bank of England is unlikely to raise interest rates until the end of 2018 rather than earlier in the year as in its previous forecast.

The recent YouGov/CEBR Consumer Confidence Index show that sentiment fell from 109.1 in the week before the election to 105.2 in the fortnight after it. Consumer spending growth is likely to be only 1.5% this year compared with 2.8% in 2016. A further fall to 0.8% is likely for next year. A survey from the Resolution Foundation has found that wages are falling, which combined with greater inflationary pressures, is putting a squeeze on consumer spending.

Nina Skero, head of macroeconomics at CEBR, said, “Our data on confidence show that the newly-created political uncertainty is highly likely to weigh on growth in the short-term. This means that we now do not expect an interest rate rise until the end of 2018.

“But we now think that a deal with the EU on Brexit is more likely than previously seemed which will benefit both the UK and the remaining members of the EU. We have therefore revised up our forecasts for growth for the period from 2019 onwards.’

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