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The Actuary The magazine of the Institute & Faculty of Actuaries

UK economy to grow faster than expected

Stronger than expected consumer spending has led the British Chambers of Commerce (BCC) to upgrade its 2017 UK GDP growth forecast from 1.1% to 1.4% today.

The service sector is predicted to expand by 1.9% in 2017 ©Shutterstock
The service sector is predicted to expand by 1.9% in 2017 ©Shutterstock

The business group said that an upward revision by the Office for National Statistics for growth in the last quarter of 2016, and a modest improvement in the outlook for investment and trade also prompted it to revise its forecast.

However, expectations for 2018 were downgraded slightly from 1.4% to 1.3%, due to rising inflationary pressures eroding real wages, although GDP growth is predicted to rise to 1.5% in 2019.

BCC director general, Dr Adam Marshall, said: “Thanks to the hard work of businesses and the continued resilience of the redoubtable British consumer, the UK economy is likely to grow somewhat more strongly than we'd previously expected during 2017.

“Yet with several years of unspectacular growth ahead, coupled with inflationary pressures and the uncertain outcome of Brexit negotiations, it has never been more important to tackle the long-standing constraints that limit business confidence and growth here at home.

“Last week's budget was a missed opportunity. More thoughtful and radical moves to improve the business environment would give businesses – and GDP forecasts – a boost during a critical and complex time.”

Buoyed by the fall in value of the pound, the BCC upgraded its export growth forecasts from 2.3% to 2.7% for this year, from 2.9% to 3.1% for 2018, and expects it to grow by 2.8% in 2019.

The service sector is predicted to expand by 1.9% in 2017, 1.5% in 2018, and 1.7% in 2019, however, there are concerns that the UK’s reliance on certain sectors continues to leave it vulnerable to financial shocks, with manufacturing expected to grow by just 0.7% next year.

“The UK economy is still set to enter a more subdued period, with growth expected to remain materially below trend over the near-term,” BCC head of economics, Suren Thiru, said.

“The imbalances in the economy continue to leave the UK increasingly exposed to economic shocks. While household consumption’s contribution to UK GDP growth is likely to decrease over the near-term, the slight improvement in investment and trade prospects over the same period is not expected to be enough to prevent a slowdown in overall growth.”

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