Britain’s economy will lose momentum both this year and next as the squeeze on living standards caused by higher inflation outweighs the benefits for exports of a cheaper pound, one of the world’s leading rating agencies has predicted.
Standard & Poor’s said that after holding up much better than predicted in the period immediately after the June 2016 EU referendum, the UK’s growth rate would slow from 1.8% in 2016 to 1.4% in 2017 and 0.8% in 2018.
The rating agency warned that the outlook for the economy might be even worse than it was predicting if the Brexit talks between the UK and the EU went badly.
The report followed the release of several pieces of weak official data from the Office for National Statistics, showing industrial production and construction output down and the trade deficit widening.
Despite speculation of an increase in interest rates from the Bank of England next month, S&P said the weakness of the economy would result in borrowing costs being left on hold at 0.25% for another two years.
The agency’s senior economist, Boris Glass, said: “Given demand weakness, the temporary nature of imported inflation, moderate domestic wage pressures, and Brexit uncertainties, we expect the Bank of England’s current ultra-accommodative stance to continue over the medium term and expect a first rate hike to occur only in mid-2019.”
S&P said the better-than-predicted performance of the economy in 2016 had been the result of “extraordinarily robust consumer spending” but added that the pressure on households from prices rising more rapidly than wages was likely to persist for the rest of 2017 and into 2018. [...]
Full analysis on The Guardian
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