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That came hours after a Deloitte survey showed how accelerating inflation -- also currency related is squeezing consumers and eating into their disposable incomes.
The pickup in prices is already weighing on consumers, with
data on Friday showing
While the improvement in exports is welcome, the diminished power of the consumer doesn’t bode well for an economy that relies heavily on domestic spending.
Read also: UK economy sending out mixed signals
Data due April 28 is forecast to show economic growth slowed by almost a half in the first quarter, to 0.4 percent. Expansion is still projected to reach 1.8 percent in 2017, matching last year’s pace.
Deloitte’s report showed consumer confidence weakened in the first quarter and households were the most pessimistic on their disposable income in more than two years. Inflation was at 2.3 percent in March, up from 0.5 percent a year earlier, and may exceed 3 percent later this year. With wage growth stuck below 2.5 percent that would leave workers with no real income growth.
“Spending has held up well, but with inflation rising and nominal wage growth starting to slow, consumers are beginning to feel a squeeze,” said Ian Stewart, chief economist at Deloitte. While sterling has rallied since Prime Minister Theresa May called an election for June 8, it’s still down about 14 percent since the European Union referendum in June.
“The weakened pound is a double edged sword for
manufacturers,” said Howard Archer, an economist at IHS Markit in
Bank of England Deputy Governor Ben Broadbent has called the economy’s current circumstances a low pound and continued access to the EU single market a “ sweet spot” for exporters that may not last. Michael Saunders, another BOE policy maker, said last week that while the long-term effects of Brexit may be detrimental, he sees a rise in exports and stronger-than-forecast growth over the next couple of years.