Brexit will cause drop in consumer spending and GDP slowdown, warns PwC

Rising inflation caused by a weak pound will mean the UK faces two years of a slow economy, forecasts consultancy PwC.

In its report on the UK economic outlook, PwC said that while the UK economy grew by 2% in the year to Q1 2017, the quarterly rate fell to 0.2%, primarily as a result of a softening in consumer expenditure and the services sector.

"We forecast UK growth to slow to 1.5% in 2017 and 1.4% in 2018. The UK would avoid recession in this scenario, although risks to growth are still weighted somewhat to the downside given the uncertainties associated with Brexit," the report said. 

A key factor behind the overall slowdown is a slowing in consumer spending growth to around 2% in 2017 and 1.5% in 2018.

This is due to a squeeze on household spending power from higher inflation (due to rise above 3% this year) and sluggish wage growth, despite the lowest unemployment rate since 1975.

PwC projects that London could continue as the fastest growing UK region in the next two years but its pace of expansion is expected to slow significantly. 

"Other regions are projected to see average real growth in 2017-18 of around 1-1.5%, but we do not predict negative growth in any region in our main scenario," the report said. 

This situation means that The Bank of England is not expected to raise the base rate from 0.25% immediately, but PwC expects a gradual increase to begin at some point over the next 12-18 months.

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