Growth in the UK will fall sharply next year due to the impact of Brexit, according to new estimates today by the EU Commission and the IMF.
The Commission sees a risk of recession in the UK if Brexit has a serious impact on consumer and business confidence and both organisations believe that at best the UK will record growth of 1 per cent next year.
Growth in the UK next year will be one percentage point lower than previously forecast because of Brexit, according to the new forecast from the IMF.
Growth so far in 2016 in the UK has been above expectations but the IMF, in an update to its World Economic Outlook, says the increase in uncertainty after the referendum will weaken domestic demand and reduce expected growth to 1.3 per cent next year, down from a previous forecast of 2.2 per cent.
The EU Commission has not updated its formal forecasts. But in a first estimate of what Brexit could mean, it has cut its forecast for UK growth next year. It had previously forecast GDP growth of 1.9 per cent in the UK next year, but its new estimate says UK growth next year could be between minus 0.3 per cent and 1.1 per cent, after growth of about 1.5 per cent this year.
Lower growth in the UK – and in other export markets – is likely to affect the outlook for Ireland, though the latest update to the IMF's World Economic Outlook only covers the major economies, and the Commission document looks at the UK and the EU area.
Both organisations see a limited impact on international growth this year, but more in 2017, with a potentially greater impact if financial tensions grow, or business and consumer confidence takes a heavy hit.
World growth
The IMF has cut its estimates of world growth by 0.1 of a percentage point in both 2016 and 2017 to 3.1 per cent and 3.4 per cent respectively. However, growth in advanced economies will remain sluggish at 1.8 per cent in both 2016 and 2017.
The EU Commission had forecast euro area growth of 1.7 per cent both this year and next. It now estimates growth of 1.5-1.6 per cent this year and 1.3 -1.5 per cent next year.
Both organisations underline the increased risk and uncertainties.
The IMF says that Brexit is still “ very much unfolding” and that the extent of political and economic uncertainty has risen. This means that “ the likelihood of outcomes more negative than the one in the baseline has increased”.
The EU Commission said that the immediate impact would be an “ uncertainty shock”. The vote has create new risks and an “extraordinarily uncertain situation”, the commission says.
