The European Commission has upgraded its 2017 growth forecasts for the UK, but still expects a more severe hit to the economy than the Bank of England, as consumers and firms cut back spending over the next two years.

In its Winter Forecasts, the Commission has pencilled in growth or 1.5 per cent for Britain in 2017.

That's up from the 1 per cent it forecast in the autumn, but well down on the 2 per cent growth the Bank of England projected in its latest Inflation Report.

For 2018 the Commission has pencilled in a further slowdown to 1.2 per cent growth, unchanged from previously.

By contrast, the Bank projects 1.6 per cent growth in 2018.

"We must acknowledge that growth has been more resilient than was forecast," said Pierre Moscovici, the EU's economic and financial affairs commissioner, referring to the fact that growth has so far not faltered in the wake of last June's referendum result.

UK upgraded in 2017 but not 2018

European Commission

But the Commission's forecasts nevertheless highlight an imminent sharp slowdown in private consumption due to rising inflation from the 12 per cent slump in sterling since last June.

It also sees "rising uncertainty" over the outcome of the Brexit process deterring business investment, which it expects to show up in the aggregate GDP figures later this year.

"The factors weighing on private consumption growth are expected to persist, and intensify [in 2018], and business investment is expected to increase only marginally," the Commission said in its report.

Source of the slowdown

European Commission

For the overall eurozone, the Commission has upgraded its 2017 forecast to 1.8 per cent from 1.6 per cent previously.

The 2018 forecast for the 28 member bloc is unchanged at 1.8 per cent.

Theresa May is expected to fire the starting gun on the UK's two-year EU divorce process by the end of next month.