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UK momentum 'set to slow'

The UK economy was stronger than expected in the third quarter - but the momentum is set to slow over the next two years, the British Chambers of Commerce has said.

The body has upgraded its growth forecast for 2016 from 1.8 per cent to 2.1 per cent, and from one per cent to 1.1 per cent for 2017.

However, it has downgraded expectations for 2018 from 1.8 per cent to 1.4 per cent, saying continued uncertainty over the UK's future relationship with the EU and higher inflation are expected to dampen growth.

Inflation is expected to breach the Bank of England's two per cent target next year, with the BCC forecasting 2.1 per cent in 2017, rising to 2.4 per cent in 2018. This has been revised up from previous forecasts of 1.6 per cent and 1.8 per cent respectively.

The falling value of the pound since the EU referendum is expected to fuel inflation, significantly affecting both consumer spending and business investment. Average earnings will hold steady, but real wage growth is likely to be eroded by inflationary pressures, it added.

Household consumption is expected to slow from 2.7 per cent in 2016 to just 0.6 per cent in 2017 and 2018.

Meanwhile, business investment is forecast at minus 0.8 per cent in 2016, minus 2.1 per cent in 2017 and 0.3 per cent in 2018.

Nevertheless, the BCC does not expect the economy to enter a recession.

It expects public sector net borrowing to be £15.2bn higher over the next three years than predicted by the Office for Budget Responsibility at the 2016 Autumn Statement. Slower growth is likely to weigh on the UK's ability to generate tax revenue, it said.

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. Lower sterling and rising inflation are now starting to affect business communities and consumers across the UK. While a lower pound is a boon for some exporting businesses, many others see the latest devaluation of sterling less positively, as they are unable to benefit from it.

"Given our findings, deeper incentives for both investment and exporting will be needed in the months and years ahead. As the Brexit negotiations commence, steps will need to be taken to help ambitious firms overcome the risks, real and perceived, borne out of political uncertainty.

"It is imperative that Government does 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."

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