UK growth is expected to be sluggish for the next few years even if a Brexit deal is secured, according to the National Institute of Economic and Social Research (NISER).
In a report released yesterday, the think tank lowered its estimate for growth this year to 1.5 percent from 1.9 percent, and said output will pick up only slightly to 1.7 percent next year and 2021.
“It’s not a collapse in the economy, but certainly there is a slowdown,” Amit Kara, head of UK macroeconomic forecasting at NISER, told reporters in London. “There’s still going to be a period of uncertainty which will probably last for at least a year. It’s only then when we’ll know the exact relationship and that’s when the cloud of uncertainty will lift.”
NISER’s central forecast is based on a scenario where the UK leaves the EU at the end of next month with an exit deal in place, leaving the economy limping along even if its most pressing barrier to growth is resolved. A more chaotic outcome could see investment tumble, pushing growth even lower, the think tank said.
With the UK scheduled to depart the EU in less than two months, British Prime Minister Theresa May’s government has yet to get her exit plan through Parliament. That uncertainty has led to weaker business investment, while a depreciated pound has not bolstered exports as much as expected, Kara said.
Still, low unemployment should continue to boost wages and help consumers, he said. If the UK leaves the EU with a deal, the Bank of England will likely raise interest rates in August, and continue to do so by 25 basis points every six months until the end of next year when bank rate reaches 1.5 percent, according to the NISER report.
On Tuesday, financial information firm IHS Markit said its “all-sector” purchasing managers’ index, which incorporates gauges of manufacturing, construction and services activity, dipped to 50.3 points last month from 51.5 the previous month. Were it to fall below 50, it would be indicating a fall in output.
“The survey results indicate that companies have become increasingly risk averse and eager to reduce overheads in the face of weakened customer demand and rising political uncertainty,” IHS Markit chief business economist Chris Williamson said.
Though the survey takes a snapshot of only one month, it provides a steer as to the economy’s momentum. The Bank of England, for example, watches the survey as it assesses it monetary policies.
The Bank of England is to announce a monetary policy decision and update its forecasts for growth and inflation today, the same day May next goes to meet EU officials in Brussels.
Additional reporting by AP
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