A leading think tank believes surging inflation is set to dent real wages and resilient consumer spending for the year ahead. The Centre for Economics and Business Research (Cebr) indicated inflation will almost quadruple to 2.7 per cent over the course of 2017.
Consequently they believe the UK’s economic growth will stutter in 2017 as the effects of the consequent fall in consumer spending take hold. Cebr predicts UK GDP growth of only 0.8 per cent in 2017 – the lowest point since 2009 during the financial crisis. It will eventually return to 2016 levels of 1.8 per cent in 2019.
Consumers are predicted to spend less as rising shop prices outstrip wage growth. Economists are concerned about this because consumer spending was the main factor in preventing a widely predicted economic slowdown after the UK’s vote to leave the EU. The knock-on impact of this would be a rise in unemployment to 5.3 per cent in 2017 under Cebr’s central forecast, representing a steep increase. The rise in unemployment should reduce the temptation for the BoE to raise interest rates to fight inflation, according to the Cebr.
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