The UK National Institute of Economic and Social Research (NIESR) said the UK economy has “recently gained momentum” with Q3 GDP growth at 0.7%. Under the main forecasts scenario, based on “soft” Brexit, 2019 growth forecasts were revised up to 1.9%, reflecting the stronger momentum. However, NIESR also warned that here is “an enormous amount of uncertainty” around the forecasts.
Under a no-deal Brexit scenario which UK has to revert to trade under WTO rule, growth is projected to slow sharply down to just 0.3% in 2019. Unemployment rate will jump to 5.8% in 2020. Inflation will surge above BoE’s target range in 2019, forcing BoE to raise interest rate to above 2.5% in 2019, next year.
The summary of new forecasts show, under a soft Brexit scenario, GDP to grow 1.4% in 2018, 1.9% in 2019 and than slow to 1.6% in 2020. CPI is expected to slow from 2.3% in 2018 to 1.9% in 2019 and then climb back to 2.1% in 2020. Unemployment is projected to drop from 4.1% to 4.0% in 2019 then rise back to 4.5% in 2020. BoE interest rate will rise from 0.8% to 1.3% in 2019 and then 1.8% in 2020.
However, under a no-deal Brexit, GDP growth will slow sharply from 1.4% to 0.3% in 2019, and 0.3% in 2020. Inflation will surge to 3.2% in 2019 before falling back to 2.6% in 2020. Unemployment rate will jump to 5.3% in 2019 and rise further to 5.8% in 2020. BoE will have to raise interest rate much faster to 2.6% in 2019 before dropping to 2.5% in 2020.
Full forecast will be published later on October 31.
