Think tank forecasting growth as consumer spending squeeze to ease

The think tank said that the squeeze on consumer spending, a key driver of the economy, should ease in 2018, which will boost growth.

It believes that inflation will fall from its current level of 3 per cent to around 2 per cent by the end of the year, as the impact of sterling’s devaluation fades.

It also forecasts modest wage growth this year. Additionally, the ITEM Club predicts that business investment will rise 1.8 per cent in 2018, which in turn will spur increased economic growth.

The forecast assumes that a Brexit transition deal between the UK and EU will be agreed in the first half of the year, which would maintain current trading and operating conditions for British firms and give them confidence to invest. 

However, the think tank, which uses the Treasury’s models to make its forecasts, warned that while the economy is stable, it will be stuck in the “middle lane” over the medium term.

Howard Archer, chief economic advisor to the ITEM Club, said that if a transition agreement is not agreed, there is a “strong risk” of business investment slowing and ultimately, constraining economic growth.

He said: “The near-term prospects for the economy appear brighter. However, it is not time to crack open the champagne just yet.

“If a Brexit transition arrangement can be agreed early in 2018, this would likely provide a boost to investment prospects over the year. Nevertheless, there will still be major uncertainties over the longer-term trade relationship between the UK and EU which will likely limit the upside for investment.”