The UK can expect low economic growth for the next three years, a forecasting body said, adding a no-deal Brexit could dent growth even further. The EY Item Club predicted GDP growth of 1.3 per cent this year, and 1.5 per cent in 2019, down from 1.4 and 1.6 per cent respectively in its previous outlook three months ago. It said the figures were based on the assumption that the UK and the EU would agree transition terms. If this did not happen, conditions could be “significantly weaker”.
Howard Archer, chief economic adviser to the EY Item Club said, “Heightened uncertainties in the run-up to and the aftermath of the UK's exit could fuel business and consumer caution. This is a significant factor leading us to trim our GDP forecasts for 2018 and 2019.” The EY Item Club predicted that the UK would see two interest rate rises this year, and two more in 2019. However, following the Bank of England's decision in August to raise rates from 0.5 to 0.75 per cent, the forecaster said it did not expect another increase now until August next year, with two more rate rises likely in 2020.
It added, “The EY Item Club suspects that the Bank of England will want to see sustained evidence that the UK economy is holding up relatively well after Brexit occurs in late March, before hiking interest rates.” EY chief economist Mark Gregory said, “The UK economy is going to experience a period of low economic growth for at least the next three years, and businesses need to recognise this and adjust accordingly. They should also consider a sharp downside to the economy in the event of a no-deal Brexit and make preparations for such a scenario.”
Gregory said a “prudent approach” would be for firms to test the robustness of their businesses, especially cash flow, against a short period of severe disruption, followed by a downturn for three or four quarters.
