THERE is a roughly one-in-four chance the UK is already in a technical recession with economic growth having stalled, and a disorderly no-deal Brexit could trigger a severe downturn, a leading think-tank has warned.
Issuing its latest projections yesterday, as sterling remained under pressure on the foreign exchanges on a strong expectation that Boris Johnson would be announced as the UK’s next prime minister today, the National Institute of Economic and Social Research warned the probability of a no-deal Brexit was “high”.
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And the think-tank warned: “The short-term outlook for the UK economy is very murky indeed, with a significant risk that a severe economic downturn will begin within the next six months. With economic growth already faltering, a disorderly no-deal Brexit could cause widespread disruption to trade, a sharply lower exchange rate, higher inflation and lower living standards. A disorderly no-deal Brexit is not the most likely outcome, but it is a definite possibility among the large number of possible paths the United Kingdom could take in the months ahead.”
The NIESR estimates that UK gross domestic product will have fallen by 0.1 per cent in the second quarter, partly because of shutdowns in car manufacturing, associated with the previously planned Brexit date of March 29, and “persistent weakness” in the services sector. Official second-quarter GDP figures are due to be published next month.
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And the NIESR flagged a lack of momentum in the UK economy in the current quarter as it highlighted the danger of technical recession.
It declared: “Our GDP tracker suggests that a technical recession will be narrowly avoided with output expected to expand by 0.2 per cent in the third quarter. Nevertheless, with little positive momentum in the economy, output may contract again in the third quarter, and there is around a one-in-four chance of two consecutive quarters of negative growth, the technical definition of recession.”
The NIESR, citing the latest planned Brexit date of October 31, warned the UK economy’s prospects beyond the third quarter were “very uncertain” and “depend on the form of Brexit that emerges, if any, and the policy response to it”.
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It also highlighted its view that tax cuts for the higher paid – a suggested response to a no-deal Brexit from Mr Johnson – would do little to address the low savings rate or other structural economic weaknesses that were damaging to the UK’s future prosperity.
The NIESR said: “The three broad options are that the Article 50 period is extended again, the UK leaves the EU with a deal, or it leaves without a deal. Our assessment is that any of these three options has a reasonable chance of emerging in the coming months, though some well-informed commentators think that a no-deal Brexit is more likely than not.”
It added: “This means that there are significant risks ahead, especially as some of the possible policy responses to a no-deal Brexit that have been suggested, such as tax cuts for the higher paid, will do little to address the low national saving rate or other structural weaknesses that are also detrimental to the long-term prosperity of the United Kingdom.”
Sterling was, at 5pm in London, trading around $1.2474, down 0.24 cents on its pre-weekend close. The pound also slid against the euro. The single currency was, at 5pm, trading around 89.88p, up by 0.1p on its pre-weekend close in London.
Sterling was weighed down last week by the Conservative leadership contest between Mr Johnson and Jeremy Hunt and consequent fears of a no-deal Brexit.
In a campaign video released last month, former foreign secretary Mr Johnson told a member of the public: “If I get in we’ll come out, deal or no deal, on October 31.” He has continued to hammer home his determination for the UK to leave the EU by Hallowe’en whether or not there is a deal.
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