The UK is predicted to experience "steady but subdued" economic growth over the coming two years, according to the latest  forecast from one of the country's leading business groups.The Confederation of British Industry (CBI) report pointed out that, after a strong performance in the second half of 2016, the economy slowed at the start of this year and said that this was expected to continue for the foreseeable future."The economy continues to face headwinds, with ongoing political uncertainty and Brexit negotiations set to begin, which will require careful navigation by business and the government in the months ahead," said the CBI.The group is now forecasting 1.6 per cent growth for 2017 and 1.4 per cent in 2018 - half the average pace of growth from 2013 to 2016. "Domestic demand will play less of a role in driving growth, but net trade will provide additional support as exports are lifted by the lower pound amid a solid global economic backdrop," said the CBI.The organisation added that it was looking forward to working with the new government to get the right Brexit deal and to boost investment in skills, innovation and infrastructure.

UK economy: rising inflation and low wage growth

Carolyn Fairbairn, CBI director-general, commented: “The UK economy has proved hardy in recent times, with firms up and down the UK getting on with what they do best by investing and creating jobs. Growth should be steady, if restrained, over the next couple of years as the pace of the economy shifts down a gear.“While the country’s exporters should emerge as a real catalyst of growth, rising inflation and stubbornly low wage growth mean that people are already starting to feel the pinch. Tighter purse strings mean slower household spending growth and uncertainty is likely to weigh on the minds of those making major investment decisions.

UK government needs to invest in infrastructure, innovation and skills

“So, after a frantic period in Westminster, this is the time for a renewed focus on the economic fundamentals of this country. Above all, the new government has the opportunity to signal loudly and clearly that Britain is a great place to do business - relentlessly focusing on investing in infrastructure, innovation and skills nationwide, while delivering a sensible and competitive tax and regulatory environment.“Most important of all, we need to move much faster to fix the foundations of the UK economy, addressing our persistently underwhelming productivity performance. The new government can breathe life into a new Industrial Strategy delivering a fair, innovative and competitive economy fit for the 21st century, raising living standards and spreading prosperity to all corners of the UK.

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Brexit’s effect on the UK economy

“And now Brexit negotiations are beginning, it will be essential that negotiators on both sides remain cool, calm and collected, in order to make rapid progress on what a successful new relationship will look like. Putting trade, jobs and people first by agreeing transition arrangements and guaranteeing EU citizens’ rights early on would set the right tone.“But the less likely a 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.“To achieve this, now is the time to build the best partnership anywhere in the world between business and government, shoring up the foundations of our economy. Firms of all sizes, from start-ups to multinationals, are ready and up for the challenge.”Rain Newton-Smith, CBI chief economist, added: “The resilience in the UK economy over the second half of last year is a testament to businesses of all sizes and sectors. Even accounting for weaker growth at the start of 2017, the momentum from last year gives us more of a lift as we move ahead, and this explains our higher annual growth forecast relative to November.“But very little has changed in our view of the nature of the outlook. Growth will be slower in the years ahead as living standards are hit by rising inflation; and after some initial strength, uncertainty will weigh on business investment. But with the pound still low and expected to remain so, we do expect more of a lift from net exports.“Trade will be also be supported by a firm global backdrop. World growth should continue to improve as the US economy ticks along, the Eurozone continues its gradual recovery and emerging market growth motors along.“But risks to our forecast remain high. In particular, uncertainty over the UK’s future role in the EU could have more of an impact on both activity and financial market volatility than we expect. In the near-term, there are more risks to the upside too: particularly with surveys pointing to firmer growth over Q1 2017 and going into Q2.”

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