Brexit 'means economy faces 50/50 recession chance'
3 August 2016
The National Institute of Economic and Social Research (NIESR) says the UK will go through a
"marked economic slowdown" this year and next. It says inflation will also pick up, rising to 3% by the
end of next year. "This is the short-term economic consequence of the vote to leave the EU", said Simon
Kirby of the NIESR.
Overall the institute forecasts that the UK economy will probably grow by 1.7% this year but will expand
by just 1% in 2017. This would see the UK avoid a technical recession, typically defined as two consecutive
quarters of economic contraction.
Mr. Kirby argued that the June referendum vote had led to such financial and political uncertainty that
this would bear directly on the spending and investment decisions of both businesses and households.
"We expect the UK to experience a marked economic slowdown in the second half of this year and
throughout 2017," he said. "There is an even chance of a 'technical' recession in the next 18 months,
while there is an elevated risk of further deterioration in the near term."
The pick-up in inflation to 3% will mainly be due to the recent fall in the value of the pound, but that
should be ignored by the Bank of England, the Institute said. "The Monetary Policy Committee should
'look through' this temporary rise in inflation and ease monetary policy substantially in the coming
months", Mr. Kirby said. The institute forecasts that the Bank will reduce interest rates to just 0.1%
eventually, after cutting them to 0.25% later this week.
Falling optimism
In a separate report, the CBI business lobby group says that the UK's small and medium-sized
manufacturers (SMEs) fear they will be hit by a fall in orders in the next three months. Its latest quarterly
survey of SMEs says business optimism has fallen at its fastest rate since January 2009, when the UK
economy was falling into recession. Now, the culprit is the uncertainty following June's Brexit vote.
Despite this, the 472 firms surveyed said that current orders were stable.
Rain Newton-Smith, the CBI's director for economics, said: "The UK's SME manufacturers reported
higher production, more staff hired and now expect to sell more of their world-class goods overseas
over the next quarter, with a weaker sterling having a hand in this. "But overall they do feel less optimistic
and are scaling back some investment plans in machinery and plants".
The CBI's survey is just the latest to suggest that the effect of the June referendum vote may be, in the
short term at least, to depress business activity. On Monday the Markit/CIPS manufacturing purchasing managers' index suggested that activity among UK manufacturers in July had shrunk at its fastest pace
for three years.
Meanwhile shoppers continue to benefit from falling prices in the UK's shops, stores and supermarkets.
According to the latest survey from the trade body the British Retail Consortium, overall prices fell by
1.6% in the year to July. Food was 0.8% cheaper than a year ago and non-food items were 2.2% lower.
Adapted from http://www.bbc.com/news/business-36953247.
A palavra “despite” em “
Despite this, the 472 firms surveyed said that current orders were stable”
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