UK GDP growth is set to lose momentum in 2017 before picking up again in 2018, according to the British Chambers of Commerce (BCC).
The BCC upgraded its UK GDP growth forecast from 1.8% to 2.1% for 2016 and from 1.0% to 1.1% in 2017.
However, due to the uncertainty of what will happen once the UK triggers article 50 means that the business body has downgraded its predictions for 2018 from 1.8% to 1.4%.
This year’s forecast was upgraded following the UK economy recording a stronger than expected growth in the third quarter.
The current level of economic momentum is set to slow over the next two years, as continued uncertainty around the UK’s future relationship with the EU and higher inflation are expected to dampen growth in the medium term.
Based on the data and the Quarterly Economic Survey, the BCC does not expect the economy to enter into a recession.
The depreciation in the value of sterling since the EU referendum is expected to push up inflation, impacting both consumer spending and business investment.
While average earnings are to hold steady, real wage growth is likely to be eroded by inflationary pressures.
The BCC expects UK public sector net borrowing to be £15.2 billion higher over the next three years than predicted by the Office for Budget Responsibility at the 2016 Autumn Statement, with slower expected growth likely to weigh on the UK’s ability to generate tax revenue.
Dr Adam Marshall, Director General of the British Chambers of Commerce, said: “In the absence of a clear road ahead, many companies have been adopting a ‘business as usual’ approach in the months since the referendum, which has kept conditions buoyant this year and prevented a sharp slowdown in growth.
“While some firms see significant opportunities over the coming months, many others now see increasing uncertainty, which is weighing on their investment expectations and forward confidence.
“It is imperative that government do all it can to help UK businesses overcome risk and take advantage of opportunities. Ministers should start by clarifying the future status of existing EU workers as soon as possible, to end the insecurity now facing employees and businesses alike.”
Suren Thiru, Head of Economics at the BCC, said: “The near-term outlook for the UK economy remains challenging, with the recent resilience in growth expected to weaken. That said, we do not expect the economy to enter into a recession over the next few years.
“Higher inflation and continued uncertainty over Brexit will weigh on the UK’s growth prospects, with consumer spending and business investment likely to be hardest hit. Average earnings should hold steady but inflationary pressures are expected to erode real wages, which will hit the spending power of households.”
Lincolnshire Chamber of Commerce were not available to comment by the time of publishing.