Rising exports will help prop up the UK economy as soaring inflation takes a bite out of consumer spending, a report has said.
Growing overseas demand for British goods made cheaper by the Brexit-hit pound will help smooth the impact on gross domestic product (GDP) from an expected slowdown in household spending, according to EY ITEM Club.
The influential think tank has revised up its outlook for GDP to 1.8% from 1.3% for 2017, to 1.2% from 1% in 2018 and to 1.5% from 1.4% in 2019.
Peter Spencer, the organisation’s chief economic adviser, said growth in world trade will also help soften the blow from lacklustre consumer demand.
“Although the starting gun for Brexit has just been fired, the UK economy has been adjusting to life outside the EU since the referendum.
“Recent data suggest the pound’s depreciation has boosted manufacturing, while inflation has subdued retail sales growth.
“At the same time, unlike 2008 when the pound last had a big fall, we are now selling into buoyant markets.
“Growth in world trade, which has been in the doldrums for several years, is now stronger than at any time since the initial bounce-back from the recession in 2010.
“This will be a big help in offsetting the headwinds from weaker consumer spending.”
The think tank said sterling’s slump since the EU referendum result will cause exports to grow by 6.7% and 5.3% respectively for 2017 and 2018, with net trade adding 0.2% to GDP this year and 0.6% the year after.
The Office for National Statistics (ONS) announced last week that GDP grew by 0.7% in the fourth quarter of 2016, as the UK economy finished the year on a solid footing.
However, it came as separate figures revealed that household saving rates had hit record lows as consumers plundered their nest eggs to keep spending amid rising inflation.
Britain’s deficit in goods and services, the gap between exports and imports, expanded by £700 million on the month to £3.7 billion in February, the ONS revealed on Friday.
Stripping out erratic items such as ships, silver, aircraft and precious stones, the trade deficit shrunk to £2.5 billion in February from £3 billion the month before.
Mr Spencer added: “With unfettered access to the single market for now and a weaker pound, exporters are currently enjoying the best of both worlds.
“However, investment in new export capacity and the UK supply chain will be necessary to extend the recent strong performance of overseas sales after the UK has left the EU.”
The think tank said the Bank of England’s Monetary Policy Committee would keep interest rates on hold at 0.25% until autumn 2018.
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