Brexit vote will plunge UK into a new recession

Forecasters slash growth figures for next two years as confidence falls

BRITAIN’S economy will be plunged into recession as a result of the decision to leave the EU, according to City economists who slashed their predictions for economic growth this weekend in the wake of last week’s shock Brexit vote.

Forecasters cut estimates for growth in 2017 and 2018. ‘Surveys indicate the mere threat of Brexit brought the recovery to its knees in the second quarter, so a recession seems likely,’ said Samuel Tombs, chief UK economist at Pantheon Economics.

‘Uncertainty will be so pervasive that most firms will postpone capital expenditure, credit will become more expensive and harder to obtain and consumer confidence will plunge,’ Tombs said.

Tombs believes the economy will contract by 0.2 per cent in both the third and fourth quarter of the year, but that the biggest downgrade to growth prospects is set to come in 2017 when growth will be 1.5 per cent lower than expected at 0.5 per cent.

Economists across the board were taking a red pen to their forecasts. James Knightley, senior economist at ING, said UK growth in 2017 will be between 1 and 1.5 percentage points lower.

‘This huge degree of political uncertainty is going to be massively disruptive for the economy. Trade gets the headlines, but nothing will change on this for two years and in actual fact the plunge in sterling could be beneficial in the near term.

‘But we are more worried about the hit to business sentiment given surveys suggested 75 per cent of UK firms wanted the UK to stay in the EU. This suggests weaker investment spending and slower hiring, which ironically is likely to dampen migrant inflows. Foreign investors are also likely to take a dim view of putting money to work in the UK given the uncertainty over its future relationship with the EU.’

Some business leaders said there would be a freeze on investment in the short term.

Mike Rake, chairman of BT and a prominent campaigner for the Remain side, said: ‘Businesses will hold back on investment in the short-term volatility. If this period of uncertainty goes on for longer and we don’t get some stabilisation then we will see people cut costs.’

Economists expect the Bank of England to slash interest rates to zero and a new Chancellor to pour cash into the economy to soften the impact.