Brexit recession not inevitable

The UK economy will flirt with, but avoid, a recession, according to economic research firm Fathom Consulting.

However, this forecast assumes that the UK’s vote to leave the European Union is an isolated event and does not make a shift to a wider breakdown in economic co-operation and global trade. Fathom Consulting said that the latter trend would lead to global recession. But even under its forecast of Brexit as a one-off event, Fathom predicted that UK GDP will slow to 0.6% in 2017, down from 1.6% in 2016. It commented: “With further falls in sterling likely to cushion the blow from weaker consumption and investment, we believe that the impact of the Brexit vote could be smaller than many imagine. For this reason, we have shifted our UK equity position from neutral to negative.”

In his final commentary as chief economist for AXA Investment Managers, Eric Chaney said that there will be a short term cost for the high economic uncertainties resulting from the Brexit votes. “Already, some leading indicators are nose diving in the UK and although continental economies should be more resilient, some indicators such as business expectations in the French Insee survey are heading south,” Chaney commented. Chaney added that the UK economy could stand still in 2017, with recession a possible outcome. Looking at the future negotiations between the UK and the EU, Chaney said that elections in France and Germany in May and September 2017 respectively will prevent the EU forming an ambitious plan, while the new UK administration will take its time to decide on its strategy. He also warned that the UK faces a possible current account deficit problem, which could lead to an eventual rate rise in order to finance a current account deficit which stood at 6.9% as at May 2016.