Growth in the UK will “shift down a gear” over the next few years as Brexit talks unfold and consumer spending slows, the CBI says.
Slightly upgrading a previous forecast, the business lobby group said it expected growth of 1.6% for 2017 and 1.4% in 2018.
However, this equates to average quarterly growth of 0.3% – half the rate seen in 2013 to 2016.
The CBI described the outlook as “steady but subdued”.
It said UK exports were likely to increase over the next few years due to the weak pound, which has fallen by around 15% against the dollar since the UK referendum over EU membership.
However, the CBI, which represents the interests of businesses in the UK, said rising inflation and low wage growth would hit domestic demand.
“People are already starting to feel the pinch,” said Carolyn Fairbairn, the CBI’s director-general. “Tighter purse strings mean slower household spending growth.”
She said that after a “frantic period” in Westminster, the government needed to demonstrate that Britain was still a “great place to do business”.
She also called on negotiators on both sides to remain “cool, calm and collected” as they forged a deal over Brexit.
“The less likely a Brexit deal starts to look, the harder it will be for firms to recruit and retain talent as well as push the button on big investment decisions. We must get Brexit right.”
In May, the Bank of England governor Mark Carney also warned of a consumer spending squeeze this year as inflation rises and real wages fall.
The bank trimmed its economic growth forecasts for 2017 from 2% to 1.9%, and raised its forecast for inflation from 2.4% to 2.8%.