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UK Economy ‘faces prolonged weakness’, Think-tank Warn

Britain is facing four years of subdued economic growth if it negotiates to remove itself from the European Union, a leading think-tank has warned today. The warning comes after Theresa May’s government have taken an increasingly public and increasingly hard line on Brexit negotiations, in what have some called ‘hard’ Brexit. However, the think-tank’s findings were made before the current focus on May’s negotiating stance.

The EY Item Club, who compiled the report, said they expect the economy to expand 1.9% this year, in line with their July forecast, but predicts growth to slow to just 0.8% in 2017. They suggest that the absence of a major negative impact on growth since the Brexit vote in June has propped up consumer spending, which in turn has ensured steady growth in the economy.

However, public pockets are expected to take a hit over the coming months as the weak pound pushes inflation up to 2.6% next year.

Manufacturers, like ourselves, meanwhile have seen a boost in overseas sales of items like welding fittings, but are adopting a wait-and-see approach in general. Firms are assessing the long term impact of a so-called “hard Brexit” on their business, which will lead to a fall in much needed investment of around 2% next year.

Nevertheless, the Item Club are expecting the pound to stay depressed, which will continue to boost overseas sales and help stave off recession from the economy. In total, they suggest that the economy will grow at a rate of 1.4% in 2018, 1.6% in 2019 and 1.8% in 2020.

Peter Spencer, chief economic adviser at the Item Club said: "It may look like the economy is taking the referendum in its stride, but we think that impression is deceptive, Sterling's shaky performance so far this month provides a timely reminder that troubles lie ahead."

"It is increasingly clear that we are heading for a hard Brexit, and that our former European partners are determined to play hard ball," he said.

"It is now consensus that, as we said in July, we will no longer have unfettered access to the European single market.

"In that case, it is vital that we get unfettered access to cheap world markets in food and manufactures when we finally leave the EU in the spring of 2019.

"That will mean trading under WTO rules initially, while we try to negotiate free trade agreements with the EU and others as best we can over the longer term."

Of particular interest to manufacturing businesses with a large number of exports, Item Club are predicting an increase in exports of 4.5% in 2017 and 5.6% in 2018 – a huge leap over what businesses might currently expect. The economy, however, will be utterly reliant on export businesses to stay afloat.

Finally, Item Club warn that certain sectors will be hit worse by the UK’s decision to leave the EU, including aerospace, automotive and chemicals, all of whom trade extensively with the EU. They suggest that these sectors may have to be propped up by subsidies or more robust industrial policy.

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