According to its Q3 ICAEW Economic Forecast, growth in 2016 has been downgraded from 2.0% to 1.8%, and further to 1.1% in 2017.
Businesses are even more reluctant to spend with business investment growth set to shrink by 2.9% this year and a further 3.7% in 2017.
As a result, ICAEW has urged government to “urgently” start making decisions and reassure businesses that it has a plan for the country’s relationship with the EU and the rest of the world after its exit from the EU.
The forecast found that the modest growth is driven by slow consumer demand, but net exports from a weaker pound are expected to help the economy to grow slightly.
Stephen Ibbotson, ICAEW’s director of business, said, “In these uncertain times, it is imperative that the new government urgently starts making some decisions to encourage and inspire investment in the UK economy.
Ibbotson said the government should use the Conservative Party Conference in October and the Autumn Statement In November to outline its plan.
“Any delays beyond these will have a further impact on confidence and make it that much harder to create the sense of optimism and purpose that is needed,” he added.
ICAEW also said capital spending is likely to remain on hold while businesses wait for more clarity on the UK’s exit negotiations.
Moreover, unemployment is expected to rise slightly, with private-sector employment growth declining from 1.8% last year to 1.1% this year.
Wage growth will continue to rise due to the new national living wage rather than because of labour market strength. However, higher inflation due to the weaker pound will lead to modest gains for households.
The unemployment rate will rise from 5.1% in 2016 to 5.3% in 2017, according to the forecasts.
ICAEW also warned businesses need to begin to understand and adapt to the new landscape and get ready for any opportunities that might arise.