Economic growth set to slow after ending year on a high

A growing 'confidence gap' exists between Scottish smaull business and their counterparts in the rest of the UKPicture: David Davies/PA Wire

A growing 'confidence gap' exists between Scottish smaull business and their counterparts in the rest of the UKPicture: David Davies/PA Wire

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Private sector growth has hit a one-year high thanks to a pick-up in manufacturing activity, but the Confederation of British Industry (CBI) warned of a “significant” slowdown in the year ahead.

The latest growth indicators survey from the employers’ organisation, published today, shows output across the manufacturing, distribution and service sectors rose to a balance of 17 per cent in the three months to December, the highest level since the end of 2015, when it reached 20 per cent.

We anticipate a significant slowing further ahead

CBI

Manufacturing saw the strongest growth rate, while the retail sector experienced a slower pace of growth despite a “solid” rise in sales. Volumes also picked up in business, professional and consumer services.

READ MORE: Upbeat end to year for Scots firms but headwinds persist

The survey, which polled 788 business representatives, found that firms expect similar momentum over the next three months, with a balance of 15 per cent seeing healthy growth over the first quarter of 2017.

However, the CBI cautioned that the long-term picture is not as bright. It said industry surveys have shown that inflationary pressures are building, while official data is pointing to rising cost pressures as the weak pound drives up import prices.

Sterling has fallen more than 18 per cent against the dollar and 9 per cent against the euro since the Brexit vote.

“Although growth since the EU referendum has been stronger than expected, we anticipate a significant slowing further ahead,” the CBI report said.

Manufacturers’ expectations for output price inflation is at its highest since mid-2011, and the CBI says consumer services and distributive sector firms are already expecting a slowdown in growth over the next few months.

The organisation’s principal economist, Alpesh Paleja, said: “It’s great to see the economy end the year on the up, with growth strengthening across the private sector. However, economic growth is likely to soften next year, as heightened uncertainty hits business investment and higher inflation weighs on household spending.

“With the fresh slate of a new year on the horizon, British businesses will be looking to the government for as much clarity as possible on upcoming EU negotiations, and want to work together to develop a post-Brexit economy that sustains growth and prosperity for all.”

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