UK economy in reverse after Brexit vote, says NIESR think-tank

The UK's economy slammed into reverse last month amid the fall-out from the Brexit vote, according to an influential think-tank.

The National Institute of Economic and Social Research (NIESR) estimates that gross domestic product (GDP) fell by 0.2 per cent month-on-month in July.

For the three months to July, NIESR said the economy eked out growth of 0.3 per cent in a “marked economic slowdown” on the second quarter, when GDP increased by 0.6 per cent.

A report from NIESR last week warned there was a 50/50 chance of the UK falling into recession – two quarters in a row of falling GDP – over the next 18 months.

James Warren, a research fellow at NIESR, said: “The third quarter has got off to a weak start, with output declining in July.

“Our estimates suggest that there is around an evens chance of a technical recession by the end of 2017.”

The Bank of England last week predicted the UK was set to avoid recession after it slashed interest rates to 0.25 per cent from 0.5 per cent – the first rate reduction for more than seven years.

Flatlining

It also delivered an emergency economy-boosting package, with £60 billion (€70 billion) of extra quantitative easing, a £10 billion corporate debt-buying programme and a scheme worth up to £100 billion to encourage banks to lend.

But the bank warned of a “material slowdown”, higher unemployment and falling house prices over the next year.

Its latest forecasts see the economy almost flatlining at 0.1 per cent growth in the third quarter, while it made record downgrades for 2017 and 2018.

The bank kept its growth forecast at 2 per cent for 2016, thanks only to a better-than-expected first half, but it sharply reduced the outlook to 0.8 per cent in 2017 and 1.8 per cent in 2018. It had previously pencilled in growth of 2.3 per cent in both 2017 and 2018.

NIESR’s predictions suggest growth will hit 1.7 per cent overall this year with a fall of 0.2 per cent in the third quarter and risk of “further deterioration”.

It expects borrowing to increase by an additional £47 billion by 2020/21 and the unemployment rate to rise from 4.8 per cent in the second quarter of this year to around 5.75 per cent in the middle of 2017.

The think-tank believes the chances of a recession in Britain have "increased significantly" since its previous forecasts, but said it expected any downturn to be temporary, with growth likely to improve from 2018. – PA