Brexit latest: CBI slashes 2017 GDP growth forecast to 1.3 per cent

The lobby group now expects growth in 2017 to be 1.3 per cent, significantly down from the 2 per cent in its forecast in May

Rain Newton-Smith, chief economist of the CBI, said business investment will remain flat next year

The Confederation of British Industry has slashed its growth forecast for next year due to the impact of weak business investment and higher inflation stemming from the Brexit vote.

The lobby group now expects growth in 2017 to be 1.3 per cent, significantly down from the 2 per cent it forecast in May, shortly before the European Union referendum.

“Business investment will remain flat next year before contracting in 2018 and downside risks to our forecast are even more acute,” said Rain Newton-Smith, the chief economist of the CBI.

The CBI is urging the Government to implement an infrastructure investment boost in the Autumn Statement on 23 November to help the economy weather the Brexit shock, which has seen sterling slide by almost 20 per cent against the dollar since June.

“We need to see fiscal moves buttress monetary policy, so the Government will need to set out an ambitious, pro-enterprise agenda that will get firms investing now, and lift productivity in the future incomes of all UK regions while balancing the books over the longer term,” said Ms Newton-Smith.

The business lobby group also expects inflation to rise above the Bank of England’s 2 per cent target as soon as the second quarter of 2017, and to hit 2.4 per cent by the end of the year.

The Bank of England will unveil its own inflation forecasts on Thursday, with analysts anticipating a major upgrade as the falling pound pushes up import prices.

The rate of consumer price inflation currently stands at 1 per cent.

The CBI’s 2017 GDP growth forecast is stronger than that of the Bank of England, which predicted 0.8 per cent growth in August.

The International Monetary Fund has forecast 1.1 per cent growth for the UK in 2017 and the Organisation for Economic Cooperation and Development expects 1 per cent.

The CBI’s 2016 GDP forecast is unchanged from May at 2 per cent, on the back of strong growth in the second and third quarters of the year.

The average of the latest independent private sector GDP forecasts for 2017 collected by the Treasury is 1 per cent.

GDP in the third quarter grew by 0.5 per cent, according to the first estimate of the Office for National Statistics published last week.