The government must turn its focus towards improving the domestic economy if it wants to break out of the GDP growth “slow lane”, according to the UKs biggest business lobby group.
The Confederation of British Industry (CBI) will publish a downgraded outlook for the UK economy, with snow in the first quarter dragging down its estimate of 2018 growth.
The CBI expects GDP growth of 1.4 per cent in 2018, down from a previous estimate of 1.5 per cent, and 1.3 per cent in 2019.
The group cited poor productivity growth, which has barely grown in the decade since the financial crisis, as an urgent priority amid Brexit uncertainty and the threat of rising protectionism among some of the worlds biggest economies.
Rain Newton-Smith, CBI chief economist, said: “Productivity weakness is a structural challenge for the UK economy and a drag on living standards.
“There is much within the UKs control that can be acted on now,” she added, citing a new runway at Heathrow and more technical skills training in particular.
Raising productivity is key to raising living standards for workers: if workers produce more firms are theoretically able to up their pay.
Living standards have been held back by rising inflation, which has eaten into real wages over the past year. Inflation will fall back over the course of 2018 as the effects of the post-Brexit referendum fade. The group forecasts consumer price index inflation will stand at 2.1 per cent.
The CBI expects the Bank of England to raise interest rates three times by the end of next year: once in the third quarter of 2018, and a hike at both the start and end of 2019.