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UK economy shrank after Brexit says think tank

By Holly Williams

The UK economy slammed into reverse last month amid the fall-out from the Brexit vote, according to one think tank.

The National Institute of Economic and Social Research (NIESR) estimates that gross domestic product (GDP) fell by 0.2% month-on-month in July.

For the three months to July, NIESR said the economy eked out growth of 0.3% in a "marked economic slowdown" on the second quarter, when GDP increased by 0.6%.

A report from NIESR last week warned there was a 50/50 chance of Britain falling into recession - two quarters in a row of falling GDP - over the next 18 months.

James Warren, a research fellow at NIESR, said: "The third quarter has got off to a weak start, with output declining in July. Our estimates suggest that there is around an evens chance of a technical recession by the end of 2017."

The Bank of England last week predicted the UK was set to avoid recession after it slashed interest rates to 0.25% from 0.5% - the first rate reduction for more than seven years.

It also delivered an emergency economy-boosting package, with £60bn of extra quantitative easing, a £10bn corporate debt-buying programme and a scheme worth up to £100bn to encourage banks to lend.

But the Bank warned about a "material slowdown'', higher unemployment and falling house prices over the next year.

Its latest forecasts see the economy almost flat-lining at 0.1% growth in the third quarter.

It also made record downgrades for 2017 and 2018. The Bank kept its growth forecast at 2% for 2016, thanks only to a better-than-expected first half, but it sharply reduced the outlook to 0.8% in 2017 and 1.8% in 2018. It had previously pencilled in growth of 2.3% in both 2017 and 2018.

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