Rising exports are set to prop up the UK economy, says ITEM club

Rising exports will help prop up the UK economy as soaring inflation takes a bite out of consumer spending, a report has said.

Britain's permanent representative to the European Union Tim Barrow, left, hand delivers British Prime Minister Theresa May's Brexit letter in notice of the UK's intention to leave the bloc under Article 50 of the EU's Lisbon Treaty to EU Council President Donald Tusk, in Brussels, Belgium, Wednesday, March 29, 2017. Barrow hand-delivered the letter signed by Britain's Prime Minister Theresa May that will formally trigger the beginning of Britain's exit from the European Union. (Yves Herman/Pool Photo via AP)

Growing overseas demand for British goods made cheaper by the Brexit-hit pound will help smooth the impact on gross domestic product (GDP) from an expected slowdown in household spending, according to EY ITEM Club. The influential think tank has revised up its outlook for GDP to 1.8 per cent from 1.3 per cent for 2017, to 1.2 per cent from 1 per cent in 2018 and to 1.5 per cent from 1.4 per cent in 2019.

Peter Spencer, the organisation’s chief economic adviser, said growth in world trade will also help soften the blow from lacklustre consumer demand.

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“Although the starting gun for Brexit has just been fired, the UK economy has been adjusting to life outside the EU since the referendum. Recent data suggest the pound’s depreciation has boosted manufacturing, while inflation has subdued retail sales growth.

“At the same time, 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.”

The think tank said sterling’s slump since the EU referendum result will cause exports to grow by 6.7 per cent and 5.3 per cent respectively for 2017 and 2018, with net trade adding 0.2 per cent to GDP this year and 0.6 per cent the year after.

The Office for National Statistics (ONS) announced last week that GDP grew by 0.7 per cent in the fourth quarter of 2016.