The Centre for Economics and Business Research (CEBR) have today downgraded their forecast for GDP expansion this year to 1.3 per cent, a hefty 0.4 percentage-point revision from April.
Growth in 2018 will suffer an equally big hit, down to 1.2 per cent from an earlier prediction of 1.6 per cent, the economists said.
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The election result on 8 June, which saw the Conservative party lose its parliamentary majority, appears to have made consumers and businesses even more wary of making major purchases or investments, survey results show.
Nina Skero, head of macroeconomics at CEBR, said: “Our data on confidence show that the newly created political uncertainty is highly likely to weigh on growth in the short term.”
CEBR’s index of consumer sentiment showed confidence fell from a reading of 109.1 in the week before the election to 105.2 in the fortnight after it. The widely followed GfK consumer survey showed consumers are much less likely to make major purchases, with overall confidence at its lowest since the EU referendum aftermath as the impact of inflation squeezes disposable income at an uncertain political time.
That caution in making purchases will drag on consumer spending growth, which will expand by only 1.5 per cent this year compared to 2.8 per cent last year. Resilient consumption was one of the main drivers of growth in the UK economy at the end of last year.
However, the weaker position for the government may also make a trade deal with the EU more likely, which could prove a boon to the UK economy in the medium term with a smaller hit to trade.
Growth will be 0.1 percentage points faster than predicted in April in both 2019 and 2020, CEBR said, at 1.6 per cent and 1.9 per cent respectively.
Skero said: “We now think that a deal with the EU on Brexit is more likely than previously seemed, which will benefit both the UK and the remaining members of the EU. We have therefore revised up our forecasts for growth for the period from 2019 onwards.”