UK will see three years of low growth, says EY Item Club

The UK can expect low economic growth for the next three years, while a no-deal Brexit could dent growth even further, says a forecasting body.

The EY Item Club predicted GDP growth of 1.3% this year and 1.5% in 2019, down from 1.4% and 1.6% respectively in its previous outlook three months ago.

The forecaster said these figures were based on the assumption that the UK and the EU would agree transition terms.

If this did not happen, conditions could be "significantly weaker".

If the forecaster's prediction turns out to be accurate, 2018 would be the worst year of growth for the UK economy since the financial crisis.

Howard Archer, chief economic adviser to the EY Item Club, said: "Heightened uncertainties in the run-up to and the aftermath of the UK's exit could fuel business and consumer caution.

"This is a significant factor leading us to trim our GDP forecasts for 2018 and 2019."

Earlier this year, the EY Item Club predicted that the UK would see two interest rate rises this year and two more in 2019.

However, following the Bank of England's decision in August to raise rates from 0.5% to 0.75%, the forecaster said it did not now expect another increase until August next year, with two more rate rises likely in 2020.

"The EY Item Club suspects that the Bank of England will want to see sustained evidence that the UK economy is holding up relatively well after Brexit occurs in late March, before hiking interest rates," it added.

EY chief economist Mark Gregory said: "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.

"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."

Mr Gregory said a "prudent approach" would be for firms to test the robustness of their businesses, especially cash flow, against a short period of severe disruption, followed by a downturn for three or four quarters.

"Even if the Brexit process goes smoothly, the cyclical risks to the UK economy mean this would still be a worthwhile exercise. Now is the time to start to think about the future shape of any UK business after 2020," he added.