UK business growth picks up in 2017 end

Business growth picked up at its fastest pace since 2015 in the final months of 2017, reinforcing hopes that the economy is recovering.

Factories, services firms and retailers all reported improved growth in the three months to December, the Confederation of British Industry (CBI) said. It comes after the economy grew by an unexpectedly strong 0.4pc in the third quarter and leaves the UK in line for GDP growth of as much as 1.8pc over 2017 as a whole - barely changed from 1.9pc in 2016 - defying fears of a slowdown.

All sectors expanded in the CBI study, with the proportion of businesses reporting ' above normal' levels of output outweighing those reporting sub-par levels by a margin of 19pc - the strongest figure since December 2015. In the dominant services sector, business and professional services companies reported a recovery after a previous period of flat output, while those serving customers also benefited from a rebound after gloomy trading conditions in November.

Retail sales stabilised and wholesale demand increased, though sales of cars struggled. Meanwhile factories reported output growth well above the sector's long-term trend.

This fourth quarter expansion beat expectations from previous months, but companies remain cautious on the outlook for 2018. The net balance of those anticipating growth slid to 4pc, an 18-month low.

"Private sector firms are enjoying healthy activity levels as we approach the year end, but mediocre expectations for growth underline the ongoing challenges facing companies," said Anna Leach, head of economic intelligence at the CBI.

"Persistent cost pressures will ensure that inflation remains at a high level, perpetuating the squeeze on household spending, particularly impacting consumer-facing firms and retailers." Uncertainty around Brexit is also constraining business investment as companies are currently reluctant to commit to major projects.

However, export growth has begun to boost the economy. The combination of a lower pound and stronger global growth have pushed up demand for British firms' goods and services.

The growth in wages still trails the consumer price index (CPI) measure of inflation, which rose at an annual rate of 3.1% last month. The Resolution Foundation thinktank said this week that earnings growth when accounting for inflation is expected to be zero over the course of 2018 as a whole, meaning the pressure on living standards is set to continue.

So far, prices have been rising almost entirely as a consequence of the pound's weakness since the EU referendum in June 2016, due to the higher cost of importing food and fuel to Britain.

While the Bank's first rate hike last month will help curb further price growth, it still expects the CPI to be above its target rate of 2% over the next three years.

The Bank also believes the growth potential of the economy before prices begin to spiral has been lowered since the Brexit vote, meaning signals of accelerating economic growth could also push up the CPI.