Britain is facing a prolonged period of weaker economic growth as the plunge in the value of the pound pushes up prices for consumers, an influential think-tank has warned.
The EY ITEM Club said the economy had been more resilient than expected following the vote to leave the European Union but this picture was deceptive.
It predicts inflation – which has been below 1% for nearly two years – climbing to 2.6% in 2017.
The report – which uses the Treasury model of the UK economy – said that this, coupled with falling business investment, would result in much slower growth rates over the next couple of years.
However, an improvement in exports – which are helped by the cheaper pound – would provide a silver lining, it added.
Britain’s economy is expected to expand by 1.9% this year, slowing to 0.8% next year before recovering to 1.4% in 2018, the report said.
Meanwhile unemployment is seen rising from 4.9% now to 6.7% by the end of 2019.
“The risk is that these figures, depressing though they are, could prove to be optimistic,” the report said.
Peter Spencer, chief economic adviser to the EY ITEM Club, said: “So far it might look like the economy is taking Brexit in its stride, but this picture is deceptive.
“Sterling’s shaky performance this month provides a timely reminder that challenges lie ahead.
“As inflation returns over the winter it will squeeze household incomes and spending.
“The pressure on consumers and the cautious approach to spending by businesses mean that the UK is facing a period of relatively low growth.”