Britain is facing three years of slow growth, rising unemployment and squeezed consumer spending as the Brexit-induced collapse in the pound triggers a radical rebalancing of the economy.

A report by influential think tank EY Item Club, which uses the Treasury’s own models to make its forecasts, said the slump in sterling could prompt a significant readjustment of the UK economy away from consumer spending towards exports.

But the rebalancing of economic activity will be accompanied by three years of slow growth, it warned.

The Item Club expects GDP growth of 1.3 per cent in 2017, down from an expected two per cent in 2016, and just one per cent in 2018.

To compound matters, unemployment is forecast to creep up from 4.8 per cent in the final quarter of last year to more than six per cent by the end of 2018.

Employment is forecast to rise by just 0.2 per cent in 2017, fall by 0.2 per cent in 2018 and remain flat in 2019.

EY’s chief economist Mark Gregory said: “Whatever the outcome of the Brexit negotiations, there are clear indications that the fall in the pound and the UK’s exit from the EU will entail a change in the structure of the UK economy.

“The onus will be on businesses to adapt to the slowing domestic economy by seeking opportunities overseas.”

The report said the silver lining would be a boost to exports as the battered pound results in more businesses seeking opportunities overseas.

It forecasts that exports will increase by 3.3 per cent this year and 5.2 per cent in 2018.

The pound has fallen more than 18 per cent against the US dollar since the June 23 referendum and £1 now buys about 1.23 US dollars, down from 1.50 prior to the vote.

Peter Spencer, the chief economic adviser to the Item Club, said: “The fall in the pound should boost exports. However, trade performance and growth in 2019 and beyond will depend upon the exit terms agreed with the EU27 and other countries.”

“Theresa May has provided some clarity on the UK’s Brexit objectives. But with elections in the Netherlands, France and Germany due later this year, it will take longer to get the same clarity on the views of the EU27 and the shape of the ensuing negotiations.”

While a weak pound will boost hopes for exporters, domestic inflation is forecast to soar to 3.1% by the final quarter of 2017, eroding disposable income and hitting consumer spending.

Household real disposable income is forecast to fall by 0.3% in 2017. As a result, consumer spending growth is set to slow to 1.7% in 2017 and 0.4% in 2018 from 2.8% in 2016, the Item Club predicts.