UK faces short recession as Brexit takes toll, warns EY

Forecaster slashes growth estimates to 0.4% from 2.6% as it predicts fall in spending

The UK will fall into a “short, shallow recession” around the turn of the year as Brexit hits house prices, jobs and spending, says the EY Item Club.

In a report to be published on Monday, the forecaster says it’s slashing its 2017 growth estimate to 0.4 per cent from 2.6 per cent and predicting the Bank of England will cut interest rates to zero by the end of 2016.

Tax reductions are also a possibility, it says, as the government scales back austerity to aid an economy reeling from the shock vote.

“There are likely to be severe confidence effects on spending, only partially cushioned by a fall in the pound,” says the report.

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“We would expect a permanent reduction in the level of UK output and productivity.”

Business investment will drop 2 per cent next year and the unemployment will reach 7.1 per cent by 2019, the report says.

It expects consumer spending to fall 0.6 per cent in 2017, with big-ticket items particularly affected. House prices will fall by 4 per cent.

Exports are the only bright spot, predicted to increase 3.4 per cent next year.

– Bloomberg