Brexit deal doubts ‘will slow UK growth over two years’
The EY Item Club said its downgrading reflects increased uncertainties currently facing the outlook due to the elevated risk of the UK leaving the EU without a deal in March 2019, recent faltering consumer purchasing power, and a clear loss of economic momentum in the eurozone over the first half of 2018 as well as an uncertain global trade outlook.
Its Autumn Forecast expects UK GDP to grow by 1.3% in 2018 (downgraded from 1.4% and 1.6% in the EY ITEM Club’s Summer and Spring Forecasts respectively), and 1.5% in 2019 (downgraded from 1.6% and 1.7% in the EY ITEM Club’s Summer and Spring Forecasts respectively).
Howard Archer, chief economic advisor to the EY ITEM Club comments: “Our forecast is based on the assumption that the UK and EU will ultimately agree a Brexit transition arrangement that will help limit the shock to businesses and the economy.
“However, 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.
“Should the UK leave the EU in March 2019 without any deal, the near-term growth outlook could be significantly weaker. Trade could be substantially affected as barriers, both tariff and non-tariff, kick in. A likely sharp drop in the pound could provide help to UK exporters, but it would also push up businesses’ costs. Consumer price inflation would also likely increase thereby weighing down on households’ purchasing power.
“However, it is also possible that the growth pattern could be distorted in late-2018 and 2019 if concerns about supply disruptions in the event of ‘no-deal’ cause companies to stockpile materials and finished products. This could be reinforced if consumers panic buy. This scenario would be liable to boost growth in late-2018 and early-2019 but weigh down on growth thereafter.”