Britain’s economy faces three years of weak economic growth which could be dented even further in the event of a no-deal Brexit, according to a respected forecasting body.
The EY ITEM Club has downgraded its outlook for 2018 to 1.3% – which would make it the slowest expansion since the height of the recession in 2009 – and expects growth of just 1.5% in 2019.
It came as Ross McEwan, chief executive of state-backed Royal Bank of Scotland, called for the government to get a grip on Brexit instead of “sleepwalking into something” due to in-fighting.
The EY ITEM Club’s numbers come in below the growth of 1.4% and 1.6% pencilled in over the summer and represent a second downgrade to forecasts by the body this year.
It said this reflected uncertainty over Brexit, faltering consumer purchasing power and a loss of economic momentum in the eurozone this year, as well as trade tensions.
The EY ITEM Club is the only non-governmental forecasting group to use the Treasury’s model of the UK economy.
Howard Archer, chief economic advisor to the EY ITEM Club, said the forecast was based on the assumption that the UK and EU would ultimately reach a transition agreement on Brexit “that will help limit the shock to businesses and the economy”.
“However, heightened uncertainties in the run-up to and the aftermath of the UK’s exit could fuel business and consumer caution,” he added.
“This is a significant factor leading us to trim our GDP forecasts for 2018 and 2019.
“Should the UK leave the EU in March 2019 without any deal, the near-term growth outlook could be significantly weaker.”
A no-deal scenario could see trade hit by tariff and other barriers and a slump in the pound – while boosting exports – would push up inflation.
There could also be distortion to growth patterns if consumers “panic buy” due to fears of shortages, boosting sales in the months after Brexit but weighing on demand later.
EY’s chief economist Mark Gregory said: “The UK economy is going to experience a period of low economic growth for at least three years, and businesses need to recognise this and act accordingly.
“They should also consider a sharp downside to the economy in the event of a ‘no-deal’ Brexit and make preparations for such a scenario.”
It comes after the UK’s Office for Budget Responsibility last week compared the possible impact of a no-deal Brexit to that of the three-day week in 1974.
RBS boss Ross McEwan was among finance chiefs who issued warnings about a no-deal scenario in Monday’s Financial Times.
Mr McEwan told the newspaper: “Politics has got to be put aside.
“This is a crucial time for this country and we just seem to be sleepwalking into something because everybody wants to have a scrap over leadership or their own views.
“Politicians need to do what’s right for this country and start focusing on what deal they want out of it collectively.”