Item Club: UK to grow slower than expected on Brexit woes

LONDON: The UK is on course to grow slower than previously estimated this year, as the risk of the nation exiting the European Union without a deal rises, according to the EY Item Club.

The world’s sixth-largest economy will expand by 1.3% in 2018, compared with a previous forecast of 1.4 %, the Item Club says today. The prediction for next year will be cut to 1.5%, from 1.6% earlier.

Data last week showed the UK economy was set for its best calendar quarter in almost two years in the three months through September, despite a weaker-than-expected performance in August. Still, Brexit remains a question mark over future growth, with Theresa May’s government yet to secure a deal with EU counterparts even as the nation’s March exit date looms.

“Should the UK leave the EU in March 2019 without any deal, the near-term growth outlook could be significantly weaker,” said Howard Archer, chief economic adviser to the Item Club. “Trade could be substantially affected as barriers, both tariff and non-tariff, kick in.”

Consumer’s spending power is set to increase “at a slow rate” in coming months, with inflation slowing to 2% by mid-2019, the Item Club report says. Businesses could also be less cautious in committing new investments over the next few months as they seek to “re-shore” supply chains to the UK from the EU to safeguard against potential trade barriers.

“The UK economy is going to experience a period of low economic growth for at least the next three years, and businesses need to recognise this and adjust accordingly,” said Mark Gregory, EY’s chief economist. “Even if the Brexit process goes smoothly, the cyclical risks to the UK economy mean this would still be a worthwhile exercise.”