UK economy contracted after Brexit vote, say leading economists

Ben Chu
Economics Editor
Tuesday 09 August 2016 13:57

The UK economy contracted by 0.2 per cent in the month following the Brexit vote giving Britain an “evens” chance of slipping into recession, according to the latest forecast from the National Institute of Economic and Social Research (NIESR).

NIESR, which uses a respected economic model to produce its monthly activity estimates, says output in July dropped by 0.2 per cent as the economy took a hit in the wake of the shock vote by a majority of the British public on 23 June to leave the European Union.

The think tank warned that its monthly estimates of GDP are volatile, but it added that this slippage was “consistent” with its broader forecast, made earlier this month, that the economy will contract by 0.2 per cent in the third quarter of 2016.

According to the first estimate of the Office for National Statistics, GDP growth strengthened to 0.6 per cent in the second quarter of 2016 (a result that Niesr’s monthly economic model had accurately predicted).

But the breakdown of the ONS estimate suggested that much of that increase in activity was concentrated in the earlier part of the quarter, with a falling away seen in May and June.

Niesr said today it that the rate of growth for the three months to July will halve to 0.3 per cent.

Post-Brexit slowdown

James Warren, research fellow at NIESR, said the third quarter had “got off to a weak start” and added that there is an “evens chance” of a technical recession for the UK by the end of 2017.

A technical recession means two quarters of declining GDP.

Last week the Bank of England forecast that the economy would narrowly avoid a technical recession, but only because of its decision to cut interest rates to a new historic low of 0.25 per cent and restart its Quantitative Easing monetary stimulus programme.

The Purchasing Managers Index surveys by Markit/CIPS, which are one of the most-watched early indicators of economy activity, suggest that economic activity fell at its fastest rate since 2009 in the wake of the Brexit vote

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