The European Commission on Thursday raised its U.K. growth forecasts for the second time in six months, saying it doesn't now expect a slowdown this year in response to the country's June 2016 decision to leave the European Union.
The commission, which is the EU's executive arm, said in its latest set of quarterly economic forecasts that it expected the U.K. economy to expand at an unchanged 1.8% rate this year, while slowing sharply to 1.3% in 2018.
In February, it forecast growth of 1.5% in 2017, having raised that estimate from just 1% in November 2016.
While the overall rate of growth is projected to be unchanged this year, the commission expects a rebalancing of the economy, with consumer spending set to slow in response to rising prices that partly reflect the depreciation of the British pound since the Brexit vote.
The commission continues to expect business investment to slow in response to uncertainty about the terms of Britain's departure from the bloc, which are under negotiation.
"Businesses are expected to defer investments in the face of uncertainty relating to the negotiations regarding the U.K.'s withdrawal from the EU, " the commission said. "The response of businesses to the negotiations is difficult to predict and represents both an upside and downside risk to the forecast."
However, the commission expects a pickup in exports to partly offset those slowdowns in domestic spending, with the pound's weakness also lowering imports. As a result, it expects the U.K.'s persistently large current-account deficit to narrow to 3.2% of gross domestic product in 2018 from 4.4% in 2016.
The new projections brings the commission's view of the economic outlook closer to those of other key forecasters. The Bank of England expects the economy to grow by 2% this year and 1.6% next, while the International Monetary Fund published similar projections in April.
Write to Paul Hannon at firstname.lastname@example.org
(END) Dow Jones Newswires
May 11, 2017 04:26 ET (08:26 GMT)