Britain’s growth forecast was raised yesterday by the Organisation for Economic Co-operation and Development months after it warned the UK would be hit by an immediate shock following the vote to leave the European Union.
The think-tank increased its UK growth projections for 2016 by 0.1 per cent to 1.8 per cent, highlighting a strong pre-referendum economic performance and prompt action by the Bank of England.
But a Bank of England report said businesses have put hiring on hold and are freezing investment in the aftermath of the Brexit vote, according to a Bank of England report.
The Bank’s summary of business conditions, based on reports from regional agents, found that “investment and employment intentions had fallen” and signalled “broadly flat levels of capital spending and employment” over the next six months to a year.
And the president of financial services giant Morgan Stanley warned the City of London will suffer as a result of Brexit. Colm Kelleher said some firms will pull their headquarters out of the UK unless passporting arrangements allowing firms based in one EU nation to operate across the bloc are retained.
The OECD said: “While markets have since stabilised, sterling has depreciated by around 10 per cent in trade-weighted terms since the referendum. For 2016, GDP growth has been supported by a strong performance prior to the referendum, even though business investment contracted.”
The Bank was praised for its swift action following Britain’s decision to quit the European Union, adding that its strong policy response helped to stabilise markets and also contributed to “moderate scenarios” following the 23 June vote.
Before the referendum, the OECD had issued stark warnings UK growth would be pummelled after a Leave vote.
A number of other economists have also brightened their outlook, upping their growth forecasts as Brexit uncertainty eased following a resilient performance from gross domestic product (GDP) in the run-up to the vote, coupled with a string of surveys pointing to a rebound in activity following July’s slump.
Nevertheless, the OECD said growth next year would be “well below” pre-referendum forecasts.
“GDP is projected to slow to 1 per cent in 2017, well below the pace in recent years and forecasts prior to the referendum. Uncertainty about the future path of policy and the reaction of the economy remains very high and risks remain to the downside.”
It added that on the UK economy’s long-term outlook, a future trading arrangement with the EU and other countries will be “critical to its economic prospects”. The group warned in July that Britain’s decision to leave the EU could result in a 3 per cent loss in GDP by the end of the decade.
Meanwhile, a poll found most Scots view Brexit as negative for the UK and Europe. According to the Ipsos MORI survey, around half of Scots (53 per cent) think the impact of the vote will be negative compared to one in five (21 per cent) who think it will have a positive effect.