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The UK economy will slow down in 2017 as the British consumer flags in the face of higher inflation due to the slump in the pound since last year's Brexit vote, according to the latest quarterly forecast from a leading think tank.
The National Institute for Economic and Social Research (NIESR) projects GDP growth of 1.7 per cent this year, which would be slightly lower than the 1.8 per cent recorded in 2016.
It is also below the 2 per cent currently forecast by the Bank of England and the Office for Budget Responsibility.
However, the think tank sees GDP growth picking up to 1.9 per cent in 2018.
NIESR expects consumer price inflation to remain weak over the next 12 months as rising inflation, which it expects to hit 3.4 per cent by the end of 2017, erodes the real incomes of households.
Consumer spending has almost single-handedly powered UK GDP growth since last June's Brexit vote, but there are signs of the motor sputtering.
"By 2018 we expect consumer spending growth to have effectively stalled," said Simon Kirby, head of macroeconomic modelling at Niesr.
According to the preliminary estimate of the Office for National Statistics, GDP growth slowed to 0.3 per cent in the first quarter of 2017, down from the 0.7 per cent expansion rate in the final quarter of 2016.
"GDP growth over the next couple of years will be subdued, growing at less than the economy's long-run potential rate of 2 per cent per annum, but households will feel the pinch from rising consumer price inflation," said Mr Kirby.
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Niesr also expects global GDP growth to strengthen to 3.3 per cent in 2017 and 3.6 per cent in 2018, rising from 3.1 per cent last year.
But the think tank highlighted significant uncertainties about this forecast given the unpredictability of the Trump administration's stance on trade and the possibility of an asset market correction due to disappointed growth expectations..
"There are significant risks that the gathering momentum of global growth could be derailed by policy mis-steps by major economies including protectionist trade policies and unrealistic budgets or a weakening of private sector confidence,” said Graham Hacche of Niesr.
Niesr expects US GDP growth to pick up to 2.1 per cent in 2017 and 2.3 per cent in 2018, It sees eurozone GDP of 1.6 per cent this year and 1.7 per cent in 2018.
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