UK economy ‘faces prolonged weakness’, report says

UK economy ‘faces prolonged weakness’, report says

UK unemployment
UK unemployment hits a 42-year low.

 

The UK economy faces a “prolonged period” of weakness, according to the latest report from EY Item Club.

According to a recently released Autumn report, think tank EY Item Club’s research has indicated the UK economy will experience weaker growth as consumer spending slows and businesses begin to reduce investments.

Despite predictions that the economy will grow by 1.9 percent this year, it warned that with inflation levels continuing to rise performance will be negatively affected. The report also warned that the UK economy’s relative stability since June’s Brexit vote was “deceptive”, and markets are yet to feel the full ramifications of the referendum result.

Whilst initial measures undertaken by the Bank of England to calm markets have been somewhat effective, the pound has continually begun to weaken sharply against the euro and the dollar, a worrying sign that the worst is perhaps yet to come. This sentiment was echoed in the comments made by a Bank of England (BOE) official to BBC’s Radio 5, who said inflation may potentially surpass original BOE targets of 2 percent.

The EY report reiterated these concerns, having projected inflation to rise to 2.6 percent in the next year, before settling down to 1.8 percent in 2018. Consumer spending growth is expected to slow from a projected 2.5 percent this year to around 0.5 percent in the following year, and 0.9 percent in 2018.

Business investment has also been forecast to fall due to uncertainty over Britain’s future trading relationship with the EU, dropping 1.5 percent this year and more than 2 percent in 2017.

EY has predicted that the impact of weaker consumer spending combined with lower investment will result in the UK’s GDP growth dropping considerably to 0.8 percent next year, before eventually increasing to 1.4 percent in 2018.

EY Item Club is a forecasting think tank group that provides insight and analysis into businesses and economic development.