Mon, Jul 18, 2016 - Page 14 News List

UK faces shallow recession as Brexit takes toll, EY says


An EU flag and a British flag stand at a foreign exchange brokerage in Tokyo on June 24.

Photo: Bloomberg

The UK is to fall into a “short, shallow recession” around the turn of the year as Brexit hits house prices, jobs and spending, according to the EY Item Club.

In a report to be published today, the forecaster is to say it is slashing its growth estimate to 0.4 percent from 2.6 percent for next year and predicting the Bank of England will cut interest rates to zero by the end of this year.

Tax reductions are also a possibility, it is to say, as the government scales back austerity to aid an economy reeling from the shock vote to pull Britain out of the EU.

“There are likely to be severe confidence effects on spending, only partially cushioned by a fall in the pound,” the report is to say. “We would expect a permanent reduction in the level of UK output and productivity.”

Business investment is to drop 2 percent next year and the jobless rate is to reach 7.1 percent by 2019, EY is also to say.

It expects consumer spending to fall 0.6 percent next year, with big-ticket items particularly affected.

House prices are to plunge 4 percent.

There is “nothing to support the housing market in this situation,” it is to say.

Exports represent the only bright spot, predicted to increase 3.4 percent next year as the sharp fall in the pound makes British goods more competitive on world markets.

That combined with the weakness of domestic demand should lead to a near halving of the current-account deficit to £58 billion (US$77 billion), it is to say.

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