Britain is now expected to narrowly dodge a mild recession that was widely predicted after the country voted to leave the EU, but the UK government will still need to add fiscal stimulus to support growth, a Reuters poll has found.
Before — and soon after — the June 23 referendum, economists were almost united in saying a vote to leave the EU would send the country into a mild recession based on an assumption that the government would move swiftly to start the divorce process.
However, as the likely date of that first move has been pushed off until early next year or later, a survey of around 70 analysts taken in the past few days shows many have tempered their views.
They gave a median 35% chance of a UK recession in the coming year, down from 60% in a July poll.
“The near-term hit to the economy won’t be as severe as many of the pessimistic pre-referendum forecasts,” said Scott Bowman at Capital Economics. “Indeed, while the economy has clearly slowed after the vote, the probability of a recession appears to have diminished.”
However, growth will be weaker than if Britons had voted to remain in the bloc, the survey found.
Meanwhile, the Bank of England yesterday said it was still likely to cut interest rates to just above zero later this year, even though the initial Brexit hit to Britain’s economy was proving less severe than it had predicted only last month.
The BoE’s rate-setters voted unanimously to keep the Bank Rate at 0.25%, the lowest level in the BoE’s 322-year history, after cutting it in August for the first time since 2009 to tackle the shock of the June Brexit vote.
Central Bank staff estimated the economy will grow by 0.3% in the July-September period, better than the previous forecast in August of a slowdown to 0.1%.
However overall economic growth of 0.3% would still be half the second quarter’s pace, and the Bank said it was hard to say what the better-than-expected performance in recent weeks meant over the longer-term. Still, new data yesterday showed British retail sales softened only slightly in August after a bumper July, suggesting June’s Brexit vote has had little impact on shoppers’ willingness to spend. Retail sales volumes edged 0.2% down on the month in August after jumping an upwardly-revised 1.9% in July, the strongest July performance in 14 years.
August’s fall was smaller than the 0.4% drop forecast by economists in a Reuters poll.
British businesses say it is too early to judge the medium-term impact of June’s vote. In half-year results, yesterday, leading clothing retailer Next said sales since July had been volatile, with gains driven by heavy seasonal discounts.
Department store and supermarket chain John Lewis said the EU referendum had had little noticeable impact but that the full impact was not yet clear.
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