Growth forecast set at just 1% for 2020

UK’S economy suffers a second major downgrade

BRITAIN’S economy will grow by just 1 per cent next year, according to downgraded forecasts from the influential EY ITEM Club think tank.

Tomorrow it will say it has cut its estimate of UK gross domestic product (GDP) growth for next year from 1.5 to 1 per cent.the increasingly fragile state of the global economy – caused by the trade war between the US and China, as well as the ongoing uncertainty over Britain’s relationship with the European Union – are behind its revised forecast.

Business investment will also continue to be weak, which will further limit the economy’s capacity for growth.

It will be the second downgrade to the ITEM Club’s forecasts this year. It had originally predicted growth of 1.7 per cent for 2020.

The think tank will say that even if Britain leaves the EU with a deal on January 31, significant uncertainties remain that will limit any boost to the economy. It predicts that UK companies will face higher non-tariff barriers when trading with EU markets in the future, as the Government wants reduced regulatory alignment with the EU post-brexit.

As a result, it has cut its 2021 growth forecast from 1.8 per cent to 1.5 per cent and trimmed its 2022 and 2023 predictions by 0.2 percentage points to 1.7 per cent and 1.8 per cent respectively.

However, if Britain crashes out of the EU without a deal next year, then GDP growth for the year could collapse to just 0.2 per cent.

The Bank of England is also expected to reveal a more cautious economic outlook when it publishes its monetary policy report on Thursday. Philip Shaw, chief economist at Investec, said: “The Bank is likely to cut its growth forecast in the monetary policy report and say that unemployment is likely to pick up too.”

On Monday and Tuesday, the closely watched Markit/cips PMI economic indicators are expected to show that both the construction and services sectors are continuing to shrink.

Construction is tipped to post a score of 44, compared to the 43.3 recorded in September, on Monday. A score over 50 indicates growth, while a reading below that points to contraction. Services, which account for around 80 per cent of GDP, is expected to come in at 49.7 on Tuesday, a tiny improvement from 49.5.

Janus Henderson chief economist Simon Ward said: “I expect services to come in at around 49 and the reason I’m pessimistic is because the latest CBI services survey was weak and there’s ongoing Brexit uncertainty.”