Brexit will start to hit UK growth ‘within two years’

Belfast Telegraph - Business Telegraph - - Business Awards - BY AN­DREW WOOD­COCK

UK eco­nomic growth will slow over the com­ing two years as the im­pact of the Brexit vote is felt, the Euro­pean Com­mis­sion has pre­dicted.

But the com­mis­sion up­graded its UK growth fore­cast for 2017 from 1% in the au­tumn to 1.5% now — still well be­low the 2.1% pre­dic­tion from this time last year, be­fore the ref­er­en­dum vote.

Growth can be ex­pected to slow fur­ther to 1.2% in 2018, as the rest of the EU over­takes the UK with pro­jected GDP growth of 1.8% in both 2017 and 2018, said the Com­mis­sion in its Win­ter Eco­nomic Fore­cast.

The re­port warned that the im­pact of the vote to leave the EU “has yet to be felt” and fore­cast that the “brisk” UK GDP growth of 2% last year will “mod­er­ate in 2017 and weaken fur­ther in 2018”.

Eco­nomic Com­mis­sioner Pierre Moscovici ( pic­tured right) told a Brus­sels press con­fer­ence: “The UK’S vote to leave the EU con­tin­ues to pose a sig­nif­i­cant down­side risk, to the UK first and to a lesser ex­tent the over­all Euro­pean econ­omy.”

The Eco­nomic Fore­cast named Brexit as one of a se­ries of fac­tors cre­at­ing an “ex­traor­di­nar­ily high level” of eco­nomic un­cer­tainty, along­side the up­com­ing elec­tions in key EU states in­clud­ing France, the pos­si­bil­ity of pro­tec­tion­ist trade poli­cies in the US un­der Don­ald Trump and a “mount­ing back­lash against glob­al­i­sa­tion” around the world.

But it said that global GDP growth is thought to have hit its low point last year and will strengthen this year and next, with growth out­side the EU pro­jected to pick up grad­u­ally from 3.2% in 2016 to 3.7% in 2017 and 3.9% in 2018.

The re­port fore­cast fall­ing busi­ness in­vest­ment and ris­ing in­fla­tion in the UK over the pe­riod, while growth in dis­pos­able in­comes and house­hold con­sump­tion is ex­pected to weaken.

But it pre­dicted that UK ex­ports will grow thanks to the de­cline in the value of ster­ling fol­low­ing the Brexit vote.

Growth in the UK has been “un­bal­anced” since last year’s ref­er­en­dum, with healthy fig­ures large- ly driven by con­sumers cut­ting back on sav­ing in order to spend, said the re­port. Pri­vate con­sump­tion growth is ex­pected to be scaled back over the course of this year, as wages fail to keep pace with UK in­fla­tion, which is fore­cast to rise “rapidly and sig­nif­i­cantly” to 2.5% in 2017 and 2.6% next year. And busi­ness in­vest­ment is pre­dicted to slow through­out 2017 as “ris­ing un­cer­tainty de­ters busi­nesses from in­vest­ing at re­cent rates”. The re­port warned: “Given the lag be­tween de­ci­sions to in­vest and ac­tual in­vest­ment, the im­pact of the re­sult of the EU ref­er­en­dum is ex­pected to be­come ap­par­ent later in 2017.” Mr Moscovici said: “The Euro­pean econ­omy has proven re­silient to the nu­mer­ous shocks it has ex­pe­ri­enced over the past year. Growth is hold­ing up and un­em­ploy­ment and deficits are head­ing lower. “Yet with un­cer­tainty at such high lev­els, it’s more im­por­tant than ever that we use all pol­icy tools to sup­port growth. “Above all, we must en­sure that its ben­e­fits are felt in all parts of the euro area and all seg­ments of so­ci­ety.”

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