UK economy faces 'loss of momentum' following Brexit, think-tank warns

EY ITEM Club says unemployment could rise to 7% by 2019.

New UK chancellor Philip Hammond abandons target of budget surplus by 2020IBTimes UK

The UK risks facing a "severe loss of momentum" after the country voted to leave the European Union, according to the EY ITEM Club.

In its latest report on the economy issued on Monday (18 July), the think tank revised its UK growth forecasts lower from 2.3% to 1.9% for 2016, from 2.6% to 0.4% for 2017, and from 2.4% to 1.4% in 2018.

The Brexit vote would have "severe confidence effects on spending and business investment", which would stunt GDP growth over the next three fiscal years, the EY ITEM Club said. It also predicted that unemployment would rise from 5% to 7.1% by late 2019.

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However, the think-tank's report was not entirely gloomy as it also opined that a drop in the value of the pound could boost exports by 3.4% next year. Overall, the UK could see a rise in exports, adding 1.1% to GDP in 2017.

Peter Spencer, chief economic adviser to the EY ITEM Club, said: "Heightened uncertainty is likely to hold back business investment, while consumer spending will be restrained by a weaker jobs market and higher inflation.

"Longer-term, the UK may have to adjust to a permanent reduction in the size of the economy, compared to the trend that seemed possible prior to the vote. But amongst the gloom, the weaker pound provides one silver lining to exporters, particularly those selling to the US and emerging markets."

Spencer also said that there were other positives ahead, including the UK retaining full access to the EU's single market in the short-term.

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