UK economic growth to 'weaken further in 2018', European Commission warns

The European Commission has downgraded forecasts of UK economic growth in the wake of the Brexit vote, with the rest of the European Union overtaking Britain in 2017 and 2018.

Although the UK enjoyed "brisk" GDP growth of 2% last year, the commission warned that the impact of the vote to leave the EU "has yet to be felt" and is expected to become apparent later this year.

In its Winter Economic Forecast, the commission projected that UK economic growth will be "moderate in 2017 and weaken further in 2018". It forecast growth of 1.5% in 2017 - down from a 2.1% prediction a year ago, before the Brexit vote - slowing further to 1.2% next year.

Over the same period, overall EU growth is expected to head upwards, from 1.6% in 2014 to 1.8% in both this year and next. Growth forecasts for the eurozone are upgraded from 1.5% to 1.6% for this year and 1.7% to 1.8% for next year.

Economic Commissioner Pierre Moscovici named Brexit as a "significant downside risk" to the EU as a whole.

The Economic Forecast named Brexit as one of a series of factors creating an "extraordinarily high level" of economic uncertainty, alongside the upcoming elections in key EU states including France, possible protectionist trade policies in the US under Donald Trump and a "mounting backlash against globalisation".

But it said that global GDP growth is thought to have hit its low point last year and will strengthen this year and next, with growth outside the EU projected to pick up gradually from 3.2% in 2016 to 3.7% in 2017 and 3.9% in 2018.

The report forecast falling business investment and rising inflation in the UK over the period, while growth in disposable incomes and household consumption is expected to weaken.

But it predicted that UK exports will grow thanks to the decline in the value of sterling following the Brexit vote.

Growth in the UK has been "unbalanced" since last year's referendum, with healthy figures largely driven by consumers cutting back on saving in order to spend, said the report.

Private consumption growth is expected to be scaled back over the course of this year, as wages fail to keep pace with UK inflation, which is forecast to rise "rapidly and significantly" to 2.5% in 2017 and 2.6% in 2018.

And business investment is predicted to slow throughout 2017 as "rising uncertainty deters businesses from investing at recent rates".

The report warned: "Given the lag between decisions to invest and actual investment, the impact of the result of the EU referendum is expected to become apparent later in 2017."