The Brexit vote has “almost certainly” caused slower growth and may have cost households as much as £600 each per year, according to an influential group of economists.
While downgrading its prediction of economic growth this year and next, the National Institute of Economic and Social Research (Niesr) said the fall in the value of sterling since the vote in June 2016 has held the UK economy back, as the recovery in the rest of the world has accelerated.
In a journal article published today, Garry Young, Niesr director of macroeconomic modelling and forecasting, wrote: “It is almost certain that the relative deterioration in the UK economy and the accompanying fall in living standards over the past year are a consequence of the vote by the British people to leave the European Union.
“Had sterling not depreciated and the economy continued to grow at its previous rate, as would have been likely with an improving global backdrop, real household disposable income per head might have been more than two per cent higher than now, worth over £600 per annum to the average household”, he added.
Niesr will today predict UK GDP will grow by around 1.5 per cent annually in 2017 and 2018, down from the 1.8 per cent expansion last year.
The weaker growth forecast comes ahead of the Bank of England’s decision tomorrow on whether to raise interest rates for the first time in more than a decade. The Bank has been nervous about raising rates, and therefore tightening the supply of money to the economy, in part because of its outlook on economic growth.
The weaker UK economic growth comes despite a “strengthening and broadening” global economic recovery, Niesr said.
Global output will rise by 3.5 per cent this year and 3.6 per cent in 2018, after weaker growth of 3.2 per cent in 2016.
However, risks to the global economy from surging asset markets remain, Niesr said, with “recent market buoyancy” and rich valuations increasing the risk of sharp crashes which could damage the economy.
“Markets are vulnerable to changes in sentiment and economic policy missteps,” Niesr said.
The UK growth downgrade “primarily reflects a more negative view about the productivity prospects of the economy”, Niesr said. Productivity may be being held back by “continuing uncertainty about Brexit and the possibility of an adverse change in trading arrangements in the future”, Young wrote.
Hourly labour productivity will average just one per cent over the next five years, compared with a 1.2 per cent prediction previously.