The National Institute of Economic and Social Research has revised its GDP forecast to just under 1.5% due to weak economic performance in the first quarter of 2018.

The organisation says it expects the downturn to be temporary.

Economic growth slowed sharply in the first quarter of this year, according to preliminary data published by the ONS.

The research showed quarterly growth of 0.1 per cent, which compares with the downwardly revised 0.4 per cent outturn for the final quarter of 2017.

NIESR said it did not believe that the weak outturn represented a prolonged period of slow growth, but its forecasts did suggest that UK growth will fall behind the Euro Area this year as well as next year.

 
The central forecast had been based on a so-called ‘soft’ Brexit assumption where the UK achieves close to full access to the EU market.

Although the UK government and the EU have made progress with a transition agreement, NIESR said there was still a risk that talks could fail and the UK ends up trading under WTO rules.

NIESR said the possibility of these events represents a downside risk for the UK GDP growth forecast and an upside risk for its inflation forecast.

Public sector wages were said to be “lagging behind” the private sector “resulting in recruitment difficulties and at the same time concerns about the quality of public services is building.”

A NIESR spokesman said: “The Government will struggle to resist lifting public sector wages and extra funding would be needed to stop the fall in public service quality.

“We therefore deviate from our standard practice of taking official spending plans as given and assume a pick-up in Government spending from 2019.”
 
He added: “On the positive side, there have been some welcome and tentative signs of a recovery in hourly labour productivity in the second half of last year.

“We have treated this recovery with caution and assumed the productivity growth remains at a subdued level of less than 1.5 per cent each year over the medium term, but the risk to that view is tilted to the upside.

“The outlook for real wages depends most critically on productivity.”