UK consumers are feeling gloomy about the economic outlook

London - Accelerating UK inflation and looming Brexit talks are taking their toll on consumers, who have lowered their expectations for the economy in 2017.

GfK’s consumer confidence index was little changed this month, while its measure of household’s outlook for the economy slipped to minus 23 from minus 22.

Excluding the sharp drop in July after the European Union referendum, that’s the lowest reading in almost four years.

The report also showed Britons have a slightly more positive perception of their own financial situation, and are spending now, but largely to hedge against predicted faster price increases next year.

Inflation picked up to 1.2% in November and is forecast to reach 2.7% next year, squeezing real income growth.

"Against a backdrop of Brexit negotiations, the decline in the value of sterling, and the prospect of higher inflation impacting purchasing power, we forecast that confidence will be tested by the storm and stress of the year to come," said Joe Staton, head of market dynamics at GfK.

In a separate report, the Confederation of British Industry said its measure of private-sector growth showed the economy continued batting away Brexit at the close of 2016, helped by a strong performance in manufacturing - the best in more than two years.

The business outlook for the next quarter is "similarly healthy," the industry lobby said. But with EU exit negotiations yet to start and the pound’s drop boosting import costs, the outlook is far from clear, and the CBI expects a "significant slowing" in 2017.