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UK economy continues stable growth despite Brexit uncertainties
Last Updated: 2018-02-12 08:36 | Xinhua
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The British economy continues to show stable growth, with the uncertainties around Brexit failing to bluntGDPexpansion, according to a report issued on Friday afternoon.

The British economy grew by 0.5 percent over the three months up to the end of January, according to figures from the National Institute of Economic and Social Research (NIESR).

The NIESR, an independent London-based economic think-tank, said in its latest report that British economic activity picked up in the second half of 2017 after a period of subdued growth in the first half of the year.

The recovery was driven by both the manufacturing and the service sectors, supported by a buoyant global economy, while construction output continued to lag, the report said.

"Growth is stable. We have been at that level for a few months now. A good ending to 2017 has helped," Amit Kara, head of British macroeconomic forecasting at the NIESR, told Xinhua on Friday afternoon.

British GDP growth would come very close to 2 percent this year, according to the NIESR, a figure which is in line with long-term trend growth, but economists now believe that the British economy is no longer capable of the level of productivity growth seen in the past.

This has a consequence of lowering the rate of growth which the economy can make without overheating.

Kara said that the NIESR's forecast economic growth of 1.8 percent for 2018 was close to or just above what the post-financial crisis British economy can sustain without hitting trouble.

"That is pretty close to the maximum it could grow at. The new maximum is now about 1.75 percent, because of Britain's lower productivity performance," said Kara.

Unemployment is now near a record low with jobs at a record high, and the BoE on Thursday once again lowered the rate of unemployment which the economy can safely sustain.

It is uncertain if demand now outstrips supply, and the consequence could be inflationary wage pressures.

"We don't see wage growth yet and there are risks around wage growth. If wages start growing without productivity then the party is over, that is the biggest fear," said Kara.

"We have had some stronger data in Q3 on productivity but it is too early to tell. We have been hammered down in the past 10 years."

FORECAST IN LINE WITH CENTRAL BANK

The Bank of England's (BoE) quarterly inflation report issued on Thursday now comes into line with the NIESR's forecasts for economic growth, said Kara.

BoE governor Mark Carney went out of his way after the inflation report's publication to make clear for markets and businesses that rises in the bank rate would be sooner and come at a faster pace.

This would be a step up from the direction of travel for the bank rate that Carney outlined in November which was soon and gradual, and which was interpreted as two rises of about 25 basis points each over the next two years.

Kara said that economic growth at nearly 2 percent was a touch too much for the economy to bear without negative effects, and backed the BoE to go for a rate rise soon.

"At this speed the economy could start to overheat unless the BoE withdraws some of the stimulus that it has injected by raising the policy rate," he said.

"Our forecast assumes a 25 basis point increase in May and then every six months until the rate reaches 2 percent by mid-2021," Kara added.

"If instead, Brexit talks fail, the UK economy will in our view suffer a marked slowdown with damaging longer term consequences."

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