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The “relatively shallow” recession in the wake of the UK crashing out of the EU without a deal would likely last for a year and lead to a 1.5 per cent contraction in the UK’s economy in 2020. The up-to 10 per cent decline in the pound’s exchange rate in this scenario would also push up inflation to above the Bank of England’s 2 per cent target, potentially forcing the central bank to lower its key interest rate to near zero, said Yael Selfin, KPMG’s chief economist.
If the UK manages to agree a deal with the EU, however, growth is projected to reach 1.5 per cent next year while house prices could increase by 1.3 per cent. [...]
Concerns about an approaching recession in the UK are already growing. After notching up 0.5 per cent growth in the first quarter of the year, the economy contracted by 0.2 per cent between April and June, as the uncertainty created by the prolonged Brexit process hampered investment and growth.
A separate report from the Resolution Foundation, an independent think-tank, warned that Britain’s next recession could prove to be “unnecessarily painful” as the BoE traditionally lowered interest rates by 5 percentage points on average, in response to recessions in recent decades.
With the central bank’s key rate already standing at 0.75 per cent, “it is hard to envisage interest rate cuts of more than 1 percentage point,” said the report. [...]
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