UK 'faces prolonged period' of economic weakness

The UK faces a "prolonged period" of weaker economic growth in the wake of the decision to leave the EU, warns the economic forecasting group EY Item Club.

Chief economic adviser Peter Spencer said: "So far it might look like the economy is taking Brexit in its stride, but this picture is deceptive.

"Sterling's shaky performance this month provides a timely reminder that challenges lie ahead."

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The think-tank, which is sponsored at arm's length by Ernst & Young, says the economy will grow by 1.9 per cent this year. However, it expects that performance to "fizzle out as inflation rises", says the BBC.

GDP will drop to 0.8 per cent for 2017 before expanding back to 1.4 per cent the following year, the group predicts, while inflation will hit 2.6 per cent in 2017, dropping back to 1.8 per cent in 2018.

Spencer adds: "As inflation returns over the winter, it will squeeze household incomes and spending.

"The pressure on consumers and the cautious approach to spending by businesses mean that the UK is facing a period of relatively low growth."

The group says growth in consumer spending will slow from this year's 2.5 per cent to 0.5 per cent in 2017 and 0.9 per cent the following year. It also expects business investment to fall 1.5 per cent this year and two per cent in 2017.

Meanwhile, a senior Bank of England official told the BBC inflation may surpass its two per cent target, fuelled by the weakness in the pound caused by the Brexit vote.

Ben Broadbent said letting inflation run ahead of the target would limit the "undesirable consequences", such as lower growth and higher unemployment.