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The British Chambers of Commerce on Monday downgraded its growth projection citing weak household spending and business investment through the forecast period and less contribution from net trade due to Brexit uncertainty.
The projection for 2017 was cut to 1.5 percent from 1.6 percent. The business lobby projected 1.1 percent growth next year instead of 1.2 percent.
Going forward, the economy is forecast to expand 1.3 percent in 2019, which was also slightly slower than the previous projection of 1.4 percent.
"The downgrades to our growth forecast confirm that the UK economy is in a challenging period with growth likely to remain well below average for a prolonged period," Suren Thiru, head of economics at the BCC, said.
Although inflation is forecast to peak at 3 percent in the final quarter of 2017, it would moderate slightly as the impact of the post-EU referendum slide in sterling fades, BCC said.
Inflation of 2.7 percent is forecast for this year, and 2.8 percent and 2.5 percent in 2018 and 2019 respectively. Nonetheless, inflation is forecast to outpace earnings until 2019, eroding real wages and weighing on consumer spending.
Accordingly, the BCC expects the bank to raise its interest rates to 0.75 percent in the fourth quarter of 2019.
Further, the BCC forecast public sector net borrowing to be GBP 12.4 billion higher over the next three years than predicted by the Office for Budget Responsibility at the 2017 Autumn Budget.
