Britain is on the verge of an export and spending boom as economists rule out the likelihood of a slowdown this year. Strong global growth combined with the weak pound is expected to send overseas sales soaring, giving businesses the confidence to ramp up investment.
Economists anticipate a surge in foreign demand combined with business investment, reinforcing growth even as inflation dents households’ spending power.
Companies were initially spooked by Brexit and feared that investment would plunge, but growth was supported by strong consumer spending last year. Economists at the EY Item Club believe the UK economy will grow by 1.8% this year, in line with 2016’s expansion. That is a big improvement from the 1.3% growth it previously forecast, with rising exports and a strong global economy driving the upgrade.
Analysts at Citi have hiked their prediction to 1.8%, while JP Morgan has upgraded its forecast to 1.9%.
“The UK economy has been adjusting to life outside the EU since the referendum. Recent data suggest that the pound’s depreciation has boosted manufacturing, while inflation has subdued retail sales growth,” said Peter Spencer, chief economic adviser to the EY ITEM Club.
“Unlike 2008 when the pound last had a big fall, we are now selling into buoyant markets.
“Growth in world trade, which has been in the doldrums for several years, is now stronger than at any time since the initial bounce-back from the recession in 2010. This will be a big help in offsetting the headwinds from weaker consumer spending.”
Spencer added that businesses will need to invest in export capacity and in UK supply chains to keep that growth going, as well as investing in skills to cope with fewer EU migrants post-Brexit.
A survey of UK corporate finance chiefs, by American Express, has found firms plan to splurge more on investment projects. 80% of finance bosses said political uncertainty has not caused them to become more cautious about raising investment spending.
A total of 86% said they plan “moderate investment spending” to boost growth while 10pc anticipate “aggressive spending and investment”. Only 2% said they plan “tightly controlled” investment spending.
The finance chiefs expect exports to be an increasingly important source of growth, 30% said overseas sales will be “much more important” over the next year while 29% said they will be “somewhat more important”.
Export and investment growth will take centre stage as inflation rises and limits households’ spending power.
Inflation figures are expected to show consumer prices rose by 2.2% in the 12 months to March, HSBC predicts, slightly slower than the 2.3% in the previous month. That is because petrol prices have dipped a little on the month, holding back overall inflation.