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UK economy to slow down this year and next, says NIESR UK economy to slow down this year and next, says think tank
(about 3 hours later)
The UK economy may slow down in the next couple of years, even while the world economy picks up, says the National Institute of Economic and Social Research (NIESR). The UK economy may slow down in the next couple of years, even while the world economy picks up, a report says.
Its latest forecast suggests the UK will grow by 1.7% this year and by 1.9% in 2018, both down from the growth rate of 2% recorded for 2016. The National Institute of Economic and Social Research (NIESR) revised up its forecasts for UK growth to 1.7% this year and 1.9% in 2018.
This will mean higher average unemployment of 5.1% this year and 5.4% next, up from the current rate of 4.8%. However, both would still be a slowdown from the growth rate of 2% recorded for 2016, when the UK was the world's fastest growing developed economy.
Inflation is predicted to rise too. NIESR predicted inflation would rise too, hitting household spending.
The NIESR thinks inflation will jump, on the now-standard CPI measure, from an average of 1.2% recorded over the course of 2016, to 3.3% this year then back down to 2.9% in 2018.
Price rises will be stoked, the Institute argues, by the sharp devaluation of the pound after the UK's Brexit vote last June.
"Robust consumer spending growth was behind the economic momentum of 2016," said Simon Kirby, head of macroeconomic modelling and forecasting at NIESR."Robust consumer spending growth was behind the economic momentum of 2016," said Simon Kirby, head of macroeconomic modelling and forecasting at NIESR.
"Consumers face significant headwinds this year and next. He said households would see their purchasing power "eroded" this year and in 2018 due to sharply rising prices.
"Most notably, the pass-through from the recent depreciation of sterling to consumer prices is expected to erode the purchasing power of households this year and next," he added. Pound devaluation
The institute thinks the Bank of England will ignore this "temporary" pick-up in inflation and keep interest rates unchanged at their current historic low point, of just 0.25%, until the middle of 20109. The NIESR, widely seen as the UK's oldest independent research body, thinks inflation will jump from an average of 1.2% recorded over the course of 2016, to 3.3% this year then back down to 2.9% in 2018.
All this will be against the background of a more robust world economy. Price rises will be stoked, the body argues, by the sharp devaluation of the pound after the UK's Brexit vote last June.
The NIESR forecasts that the world economy will grow at a faster pace in the next couple of years, with the annual growth rate rising from 3% in 2016 to 3.1% this year, and then to 3.5% in 2018. The institute thinks the Bank of England will ignore this "temporary" pick-up in inflation and keep interest rates unchanged at their current historic low point, of just 0.25%, until the middle of 2019.
But it warns that its predictions could be thrown off-kilter by any sudden changes in real economic policy in the US, following President Trump's recent election. The Bank of England will announce its latest decision on interest rates on Thursday.
All this will be against the background of a more robust world economy, the NIESR forecasts.
It believes the world economy will grow at a faster pace in the next couple of years, with the annual growth rate rising from 3% in 2016 to 3.1% this year, and then to 3.5% in 2018.
But it warns that its predictions could be thrown off-kilter by any sudden changes in economic policy in the US, following President Donald Trump's election.
"Our forecast assumes established policies," the NIESR says."Our forecast assumes established policies," the NIESR says.
"Potential policy changes in the US and any response in the rest of the world therefore pose significant risks to our projections.""Potential policy changes in the US and any response in the rest of the world therefore pose significant risks to our projections."