Brexit gloom lifted again as UK growth is upgraded.
Think tank rips up earlier forecast and predicts 1.7pc expansion, claiming 2017 was better than expected.
By Ben Marlow
ONE of Britain’s top think tanks has upgraded its growth forecasts for the UK economy, in a move that threatens to deal another blow to widespread predictions that Brexit would deliver a serious shock to Britain.
Tearing up forecasts it made just a few months ago, the EY Item Club has lifted its UK GDP estimates for 2018 to 1.7pc, up from the 1.4pc predicted in its Autumn Forecast in October last year.
Its team of economists has also acknowledged that growth in 2017 was better than expected at 1.8pc. Momentum from 2017 is now expected to carry into this year, the think tank said.
The fall in economic growth over the next 15 years if the UK left the EU with no deal, according to leaked Whitehall analysis
A let-up in the consumer spending squeeze and the chances of a near-term Brexit transition arrangement had improved the outlook for economy, it said. Both are expected to boost UK growth this year, along with falling inflation and higher company profits.
Last week, the Government stoked fresh controversy over its gloomy Brexit forecasts when new official documents were leaked claiming that the UK will be considerably worse off in 15 years’ time regardless of which deal is signed with the EU.
The cross-Whitehall analysis found that economic growth would fall by 5pc over the next 15 years if the UK left with a free-trade agreement and 8pc if the UK left without a deal. It stated that even if the UK retains access to the single market, growth would still be 2pc lower.
The findings prompted a furious backlash from Eurosceptic MPs and ministers and claims that Project Fear was still alive within the Treasury. Senior Brexiteer ministers accused Chancellor Philip Hammond of orchestrating the gloomy analysis.
“The near-term prospects for the UK economy appear brighter, with GDP growth in 2018 being helped by the squeeze on consumers easing as the year progresses,” Howard Archer, chief economic adviser to the EY Item Club, said. “We expect inflation to fall back from 3pc in December 2017 to close to 2pc by the end of the year as the impact of sterling’s past weakness fades.”
“Meanwhile, earnings growth looks likely to pick up modestly during 2018. UK growth should be helped by exports benefiting from robust global expansion and a still competitive pound,” Archer said. However, the think tank urged caution over the UK’s prospects, claiming the economy was “struggling to accelerate” compared to other major countries around the world due to limited productivity and ongoing political uncertainties, including Brexit.
“The UK will remain stuck in the middle lane in 2018 and over the medium term,” it predicted.
Although growth is now forecast to be higher, it will remain below 2.5pc in the Eurozone, 2.3pc in the US, and an estimated 3pc globally. Despite the upgrade to 2018 forecasts, the EY Item Club has slightly reduced its growth projections for 2019 to 1.7pc from 1.8pc, 1.9pc for 2020 from 2pc, and 2pc for 2021 from 2.2pc previously.
The Telegraph – January 2018