The Threat of a Recession Looms Large
While the long-term repercussions of Brexit are still uncertain, the more immediate effects are quite clear—Britain may be headed toward a recession.
In fact, according to a recent report from the National Institute of Economic and Social Research (NIESR), there is a 50 per cent chance that Britain will slide into a recession by the end of 2017. NIESR’s prediction is based upon its estimate that the UK economy will grow only by 1.7 per cent in 2016 and just 1 per cent in 2017.
If the NIESR’s forecast does prove to be correct, the economic repercussions could be severe. Inflation is already expected to increase to more than 3 per cent, which, when coupled with the weakened value of the pound, would raise the cost of imports. This situation may then effectively force the government to have to borrow an additional £47 billion over the course of the next four years in order to help sustain the UK economy.
Yet, UK businesses should remain optimistic, as economic forecasts can change just as suddenly as weather forecasts. Two days after the NIESR published its report, the BoE announced a stimulus package to prevent the potential of a recession. The most significant component of the stimulus package is the reduction of interest rates to 0.25 per cent. This is expected to help bolster economic growth and overturn the current shaky economic forecast.
While it is too soon to tell if the BoE’s stimulus package will be enough to offset the economic repercussions from Brexit, the forthcoming forecast should be more favourable.