Success of economy post-vote ‘deceptive’

ECONOMIC growth will slump to just 0.8 per cent in 2017 and the apparent success of the UK economy in the face of Brexit is ‘deceptive’, according to a respected forecaster.

The EY Item Club will say tomorrow that surging inflation will hit the UK economy, alongside a further drop in investment. It expects the UK economy to grow 1.9 per cent this year.

Peter Spencer, chief economic adviser to Item, comments: ‘So far it might look like the economy is taking Brexit in its stride, but this picture is deceptive. Sterling’s shaky performance this month provides a timely reminder that challenges lie ahead.

‘As inflation returns over the winter it will squeeze household incomes and spending. The pressure on consumers and the cautious approach to spending by businesses mean the UK is facing a period of relatively low growth.’

Mark Gregory, EY chief economist, said: ‘The economy has not fallen off a cliff since the referendum, but recent developments have led to a more downbeat assessment of the outlook. The holidays are over and businesses are now looking hard at plans and budgets. Both investment and hiring plans are likely to be squeezed in the current environment.’

Meanwhile, September inflation figures to be published on Tuesday are set to show that price rises are already starting to accelerate.

Consultancy Capital Economics said it expects September’s Consumer Prices Index, the official measure of inflation, to come in at 1 per cent, up from 0.6 per cent last month.

Paul Hollingsworth, UK economist at Capital Economics, said: ‘The drop in sterling and rise in dollar oil prices has seen fuel prices at the pumps rise by over 1 per cent in September. This should mean fuel’s contribution to CPI inflation turns positive for the first time since August 2013.’ The deflationary effect from other energy prices, including gas, is likely to fade at the same time.

Meanwhile, adding to the mixed messages from official data, employment figures due this week are expected to show the number of people in work at a record high.