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US investment bank JPMorgan has bumped up its growth forecast for the UK economy in 2017 on the back of a strong start to the year for British consumers and businesses and a brightening world economy.
The bank said it now expects the UK GDP to expand by 1.9 per cent this year, up 0.2 percentage points from its previous forecast, and matching the pace of growth in 2016.
Allan Monks, UK economist at the bank, said the upgrade was the result of a “slower than anticipated loss of momentum” in a year where rising inflation is widely expected to pinch consumer spending and raise import costs for businesses.
The most recent survey data points to accelerating activity in the private sector, helped along by an uptick global growth and a particularly robust eurozone. The UK’s March purchasing manager’s index for the service sector – which accounts for nearly 80 per cent of the economy – hit a surprise eight month high last month, according to IHS Markit.
JPMorgan’s estimate for growth this year is still a shade below the 2 per cent expected by the Bank of England in 2017.
Still, like many private sector forecasters and the BoE, JPM expects a slowdown in domestic drivers for growth as the British government begins its EU exit talks. The central bank predicts that annual inflation will rise to 3 per cent over the next 12 months.
“Despite the forecast upgrade to GDP, we have not materially altered our forecast for consumption – which looks for a slowing to 1 per cent by the middle of the year”, said Mr Monks.
Earlier today, BoE rate-setter Gertjan Vlieghe said the BoE is already seeing signs of households cutting back on spending.
“The consumer slowdown, which initially did not materialise, now appears to be under way. Given the hit to real income from a mix of subdued wage growth and rising inflation, I think the slowdown is more likely to intensify than fade away,” said Mr Vlieghe.