CBI slashes UK growth forecast amid Brexit spending warning

UK growth will slow sharply next year as businesses and consumers curb spending in the wake of the Brexit vote, the Confederation of British Industry (CBI) has warned.

The business group slashed its forecast for growth in 2017 to 1.3% from 2% as it said uncertainty over Britain's Brexit negotiations would hit business investment, while surging inflation from the falling pound would put household spending under pressure.

It is calling on Chancellor Philip Hammond to deliver on an "ambitious domestic agenda" in next month's Autumn Statement to help boost business confidence.

The CBI wants the Government to ramp up infrastructure projects, following on from the recent Heathrow expansion announcement, and encourage investment through innovation, such as targets for joint public and private expenditure on research and development.

Rain Newton-Smith, chief economist of the CBI, said: "Certainty and stability, vital ingredients that allow businesses to invest and create jobs across the UK, have been absent since the vote to leave the EU.

"Now, with the economic outlook tempered, business leaders will be looking to the Chancellor to incentivise investment and instil confidence when he delivers his Autumn Statement."

The CBI held its forecast for growth in 2016 at 2% following official figures last week showing the UK expanded by 0.5% in the third quarter - defying expectations for growth to grind to a halt after the Brexit vote.

But it said the fallout will start to take full effect next year as the plunging pound sends costs soaring, predicting that inflation will rise above the Bank's 2% target in the second quarter of 2017 and hit 2.4% by the end of the year.

The CBI forecasts that consumer spending growth will more than halve next year - from 2.7% in 2016 to 1.2% in 2017 - and again in 2018 to 0.6%.

This will be only partially offset by a rise in exports as foreign firms snap up British goods thanks to weaker sterling, it added.