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UK 2017 outlook lifted after consumers beat expectations

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The British economy will expand 1.4 per cent in 2017, up from 1.1 per cent previously, the BCC said in a report published on Tuesday.

[LONDON] The British Chambers of Commerce became the latest forecaster to upgrade their UK growth projections after stronger-than-expected household spending, though they don't expect it to last.

The British economy will expand 1.4 per cent in 2017, up from 1.1 per cent previously, the BCC said in a report published Tuesday. The group cut its 2018 forecast to 1.3 per cent from 1.4 per cent and sees growth of 1.5 per cent in 2019.

Consumers will run out of steam as inflation climbs through the Bank of England's 2 per cent target this quarter, eroding real wages, the BCC said.

Yet the pound's 18 per cent slump since Britain's vote to leave the European Union is also bolstering exports, which the BCC revised higher over the next two years.

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Market voices on:

Central bank policy makers meeting in London this week have said they will look through a temporary inflation spike fueled by the pound's decline. Economists surveyed by Bloomberg expect no one to dissent over keeping borrowing costs at a record low until the second half of 2017 at the earliest, with a large majority seeing no vote for an increase until next year.

"The imbalances in the economy continue to leave the UK increasingly exposed to economic shocks," said Suren Thiru, head of economics at the BCC.

"While household consumption's contribution to UK growth is likely to decrease over the near term, the slight improvement in investment and trade prospects over the same period is not expected to be enough to prevent a slowdown in overall growth."

Uncertainty arising from Brexit negotiations is set to damp investment, which will contract 0.5 per cent this year, the report said.

BLOOMBERG

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