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Economic forecasts slashed in wake of Leave vote

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Economists have cut their UK GDP growth forecasts and predict interest rates will halve in the wake of the UK vote to leave the European Union.

Yesterday’s referendum resulted in 52 per cent of voters favouring a Brexit that will end the UK’s 43-year membership of the EU.

IHS has cut its GDP growth forecasts to 1.5 per cent from 2 per cent for 2016, 0.2 per cent from 2.4 per cent for 2017 and 1.3 per cent from 2.3 per cent for 2018.

Chief UK and European economist Howard Archer says: “Financial sector activity in the City of London may well be hit quickly. Foreign investment into the United Kingdom is expected to suffer (both direct and portfolio).

“Sterling has fallen sharply following the vote to leave the European Union; and while this should help UK exports, it will likely push up inflation thereby squeezing consumer purchasing power and lifting companies’ input costs.”

The firm also expects the Bank of England to cut interest rates from 0.5 per cent to 0.25 per cent as well as predicting it will “resuscitate” quantitative easing.

Archer adds: “The Bank of England will likely take the view that the weakened growth outlook means it will be harder to hit the 2 per cent inflation target in two years’ time.

“Of course, the Bank of England’s position may well be made even harder if there is a sharp flight of capital from the UK after the EU exit vote, thereby exerting pressure for higher interest rates to attract the inward investment that is needed to finance the large current account deficit.”

Centre for Business and Economic Research managing economist Danae Kyriakopoulou says: “Looking further out to the medium term, the UK’s absence in European policymaking will also influence the direction of many EU policies.

“Traditionally, the UK has argued for a more liberal approach to economic policy with an emphasis on deregulation. This is likely to continue even without the UK’s free market voice.”

Capital Economics chief European economist Jonathan Loynes says the “ultimate damage” from Brexit will be less than what the “more pessimistic” projections have predicted.

Loynes says: “After all, the UK will remain inside the EU for at least two years and possibly longer. This will allow time to clear up some uncertainties, not least over the UK’s future trading relationship with the remainder of the EU and the rest of the world. Meanwhile, although sterling’s decline will lift inflation, it should also help to protect the export sector.”

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. A very sad and depressing day. We have reaped the whirlwind.

    The only analogy I can think of is that we have been like the cancer patient who has seen several eminent consultants (experts) about his condition, but decided in the end to use homeopathy. I pray the patient recovers.

    We are now in the hands of the Brexiters and I hope and pray they can deliver on even half of their promises.

    Last one out, please turn out the light. I wasn’t born in 1939, but for me this is the darkest day.

  2. Just heard the latest statistics. Graduates voted Remain by 71%. Those with only a few GCSE voted overwhelmingly to leave. Rather proves all my previous statements about ‘democracy’. Proof positive that it panders to the lowest common denominator.

    We now patently live in a society where the ignorant and uneducated hold sway. You wan’t hear it said in so many words ‘cos it’s not PC, but all the allusions are there. Good to know that the majority of advisers all fell into the educated camp judging by the MM poll. Advisers will now have their work cut out holding it all together for their clients. What a great opportunity.

    Will we have an election this year? Who will be the new Tory leader? Boris? I hear Labour has tabled a vote of no confidence in Corbyn. If they end up choosing a credible candidate, we could end up with a Labour Government if there is an election soon.

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