Brexit uncertainties and inflation are to blame for a forecast slowdown in the UK economy, which is reportedly on track for its worst year of growth since 2009.
The EY Item Club, an economic forecaster, has slashed its growth prediction for 2018 to 1.3%, which is the smallest rate of growth since the financial crisis of 2009, when the economy shrank by 4%.
The EY Item Club has also downgraded its forecast for 2019, which is now for 1.5% growth.
Figures show that summer growth was slightly ahead of expectations, but uncertainties over Brexit and a squeeze on incomes due to inflation are expected to cause a slowdown in the final three months of the year.
Howard Archer, chief economic advisor for the Item Club, noted that the current forecasts were based on the assumption that the government will ultimately reach a Brexit transition arrangement in order to minimise disruption to businesses.
“Heightened uncertainties in the run-up to, and the aftermath of, the UK’s exit could fuel business and consumer caution,” he added. “This is a significant factor leading us to trim our GDP forecasts for 2018 and 2019.”
Mark Gregory, EY’s chief economist, also cautioned that businesses must prepare for a difficult period ahead, regardless of whether a Brexit deal is reached or not. “The UK economy is going to experience a period of low economic growth for at least the next three years, and businesses need to recognise this and adjust accordingly,” he said. “They should also consider a sharp downside to the economy in the event of a no-deal Brexit and make preparations for such a scenario.”