UK growth 'to slow as economy rebalances'

The UK economy will see three years of "relatively slow growth" as it comes to rely more on trade and less on consumer spending, a think tank says.

The influential EY Item Club said higher inflation caused by a weaker pound would result in GDP growth of 1.3% in 2017 and just 1% next year.

But it said rising demand for exports would offset this somewhat.

A separate survey has found optimism in the financial services sector hit its lowest level since the 2008 crash.

Sterling has fallen by 17% against the dollar since the UK voted to quit the European Union last June, increasing import costs and pushing up shop prices.

In its latest forecast, the EY Item Club said it expected inflation to rise to 3.1% by the final quarter of 2017 before easing back to 2% by the end of 2018.

On top of this, it said unemployment was likely to climb from 4.8% in the final quarter of last year to more than 6% by the end of 2018.

"[These factors are] expected to have a knock-on impact on consumer spending, as growth in disposable incomes is eroded," the think tank said.

Export growth

But the agency also said that a "weaker pound and a softer domestic market" were likely to encourage higher levels of UK exports, as businesses seek income opportunities overseas.

It expects exports to increase by 3.3% this year and 5.2% in 2018.

Peter Spencer, chief economic advisor to the EY Item Club, said that the fall in sterling after the Brexit vote signalled "a permanent shift" in the fundamental value of the currency.

"We know that it will crush consumer spending, we'll see a progressive slowdown in retail sales and indicators like that this year," he told the BBC.

However, he also said it would offer a "permanent incentive to investors to go out, win new customers [overseas], and build capacity and expertise".

"The hard bit comes from getting exports up to pick up the slack left by the fall in consumer spending," he said.

He said that a weak pound should boost exports in the near term, but that "trade and growth in 2019 and beyond" would largely be determined by the terms of Britain's exit deal with the EU.

If exports did not pick up, the UK could be "stuck in a slow growth economy", he added.

Financial services

It comes as a PwC survey found optimism among Britain's financial services firms fell for a fourth consecutive quarter in December.

The consultancy, which surveyed 103 financial services firms on behalf of the Confederation of British Industry (CBI), found 2016 to be the "gloomiest" year for the sector since 2008.

Banks were especially pessimistic, with 90% saying that preparing for the impact of Brexit was their biggest challenge.

Many have signalled they are working on plans to deal with a so-called "hard" exit from the EU, after Prime Minister Theresa May said Britain will leave the single market.

Two of the largest banks with operations in London - HSBC and UBS - said last week they were considering moving thousands of jobs abroad.