UK's Economic Outlook Slashed in Brexit Aftermath

UK's Economic Outlook Slashed in Brexit Aftermath

The EU Referendum results came as a shock to many last week with the immediate effects having reverberated across Europe and the world impacting global financial markets heavily. The immediate effects of the so-called ‘Brexit’ have been widely reported, however, what remains to be seen is the economic impact of the Brexit in the longer-term. That, of course, is still unknown, but the media consensus to date seems to be that the future of the UK’s economy is bleak.

Needless to say, we here at FocusEconomics have had a lot of work over the last few days since the UK voted to leave the EU last Thursday. We have frantically contacted our global network of economic analysts, investment banks, and think tanks to collect their updated forecasts in the wake of the Brexit vote. Luckily, we were able to collect quite a few to compile an up-to-date post-Brexit Consensus Forecast for the UK. Some of our analysts were also generous enough to gives a few quotes with their views on the situation.

Give this blog post a read through to get some of the highlights of our Brexit Economic Impact report where we detail the effect the Brexit has had on UK GDP growth forecasts accompanied by comments from leading economic institutions.

Also, don’t forget to have a look at our UK economic outlook page and our global economic outlook page for up-to-date economic data and analysis post-Brexit. Get a copy of our UK after the Brexit report here.

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Economic Impact of Brexit | UK GDP Growth Forecasts Slashed

In the wake of last week’s Brexit vote, UK GDP growth is expected to decelerate markedly both this year and next amid a backdrop of low business sentiment, a significantly-weaker currency and a deteriorated outlook for the labor market, according to our latest survey among 21 leading institutions.

The economic analysts that participated in our latest FocusEconomics survey on the UK economy have slashed their forecasts for 2016 and now project 1.4% growth—a cut of 0.5% from the pre-Brexit estimate last month. Analysts have also revised down their forecasts for 2017 as the fallout from the Brexit will continue to be felt. The FocusEconomics Consensus Forecast expects the UK economy to grow 0.3% in 2017, a massive 1.8% downward revision from the 2.1% expansion projected last month.


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Get Report

Get a Copy of our UK After the Brexit Forecast Report

21 Independent Projections

Written Analysis, Data and Charts

Pre- and Post-Brexit Forecasts

What are Leading Economic Institutions Saying?

The risks of an unprecedented exit from the EU are being widely discussed and there is consensus among analysts that the separation process is associated with high economic uncertainty. Among the most pessimistic analysts are KBC and Credit Suisse, forecasting a contraction of 1.5% and 0.5% respectively for 2017. Frontier Strategy Group also said it had lowered its GDP growth forecast for 2017 to a contraction of 0.5% from the 2.2% expansion expected the previous month. Mark McNamee, Senior Analyst at Frontier Strategy Group comments:

“We have revised our outlook for the pound, inflation, GDP, as well as all GDP components. Our revisions assume continued political volatility, particularly driven by a coming Scottish referendum, as well as interest rate cuts by the Bank of England and major drop in investment amid such continued uncertainty in the market.”

Mikael Olai Milhøj, Senior Analyst at Danske Bank, who expects the UK economy to grow 1.0% this year and to contract 0.4% in 2017, analyzes the consequences of the Brexit on the labor market:

“We expect the UK to fall into recession in the second half of the year which would likely cause unemployment to rise with a lag. UK is likely to be hit by falling investments due to higher uncertainty about the future economic environment for British firms. It is also likely that private consumption growth will slow. The longer-term consequences depend on the future UK/EU relationship and are more difficult to estimate. In the very short term, we expect GBP volatility to remain high. We expect EUR/GBP to stabilise in 0.85-0.90 range. Medium and long-term outlook is very uncertain. Flows, growth and relative monetary policy point towards a weaker GBP.”

Some economic institutions are still in the process of revising UK’s GDP forecasts, but the downtrend trend is clear. Simon Kirby, Head of Forecasting at NIESR, suggests an impact on GDP in the range of -2.2% to -6.3% in the long-run:

Heightened uncertainty and risk aversion will likely persist in the UK and Europe in the interim, and probably beyond. It is currently unclear whether the government will aim to join the EEA or move to a WTO status. These have rather different implications for the long-run negative effect on the UK economy.”

It may be years before the full economic impact of the Brexit can be analyzed, but market volatility is very likely to remain high going forward and a prolonged political vacuum will only add to the uncertainty, all of which will weigh on the currency and the investment outlook.

Where to from here?

Where does the UK go from here? Better yet, where does everyone go from here? There are a lot of questions and not many answers as yet, however, as the world trudges along post-Brexit, the picture will hopefully become a lot clearer. All that can be done is wait and see whether the economic consequences of the Brexit turn out to be muted or if they do indeed spell disaster for the UK and the rest of the world economy. However, for the UK, our forecasts suggest the latter.

Related Links:
United Kingdom Economic Outlook
Global Economic Outlook
Uncertainy looms over UK's Economic Outlook Post-Brexit


commodities_cover_focuseconomics.jpg

Get Report

Get a Copy of our UK After the Brexit Forecast Report

21 Independent Projections

Written Analysis, Data and Charts

Pre- and Post-Brexit Forecasts

Date: June 29, 2016


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