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UK government forecaster raises 2018 growth estimate to 1.5%

The U.K. government's independent forecaster raised its forecast for economic growth in 2018 to 1.5%, up slightly from a previous estimate of 1.4% made in November 2017.

The Office for Budget Responsibility, or OBR, attributed the revision to stronger growth seen in the first half of 2018 and the "unexpected strength" of the global economy.

However, the OBR kept its growth forecasts for the next two years unchanged at 1.3%. It also lowered its growth projections for 2021 and 2022 to 1.4% and 1.5%, respectively, from 1.5% and 1.6%.

"The outlook for the economy and public finances looks broadly the same. The economy has slightly more momentum in the near term, thanks to the unexpected strength of the world economy, but there seems little reason to change our view of its medium-term growth potential," the OBR said in its report.

In 2017, real GDP growth slowed to 1.7% from 1.9% in 2016, though it was higher than the 1.5% expansion forecast in November, according to the OBR.

"Forecasts are there to be beaten," U.K. Chancellor of the Exchequer Philip Hammond said in his Spring Budget speech. "As a nation, we did it in 2017. And we should make it our business to do so again!"

Inflation is expected to remain above the Bank of England's 2% target in the near term after averaging 3.0% in the fourth quarter of 2017, the OBR said. Inflation should fall a little below target in 2019 and 2020, due to welfare cuts, lower oil prices and weaker domestic cost pressures.

On the Brexit front, the OBR report estimated the U.K.'s financial settlement with the EU would cost £37.1 billion, with £28.0 billion falling due between 2019-2020 and 2022-2023.

Hammond said the U.K. government "will continue to prepare for all eventualities" amid the ongoing Brexit negotiations with the EU.

The Treasury will be publishing the departmental allocations of over £1.5 billion of Brexit preparation funding for 2018 and 2019, Hammond said.