Britain’s vote to quit the European Union is expected to result in a slowdown of UK’s GDP growth, and a significant slowdown in house price growth, according to a report by PricewaterhouseCoopers (PwC).
PwC’s main scenario in its latest UK Economic Outlook report projected UK GDP to decelerate to nearly 1.6% in 2016 and 0.6% in 2017.
Quarter-on-quarter GDP growth is likely to drop to about zero in late 2016 and early 2017 in this main scenario, but is projected to recover gradually later in 2017 after the initial shock from the Brexit vote begins to fade, the report said.
PwC chief economist John Hawksworth said: “UK economic growth held up reasonably well in the run-up to the referendum and, while the vote to leave the EU was a major shock, we would expect the relatively flexible UK economy to adapt to this in the long term.
The sluggish growth is expected to be driven by a fall in business investment, mainly from overseas in areas including commercial property.
“But growth is likely to be significantly slower in the short term due to the political and economic uncertainty following the Brexit vote, which is likely to cause some business investment to be scaled down or deferred.”
The report also added that Britain would avoid recession in this scenario.
“The Bank of England has already taken action to steady the ship, however, and we do not expect the post-Brexit economic downturn to be anything like as severe as that following the global financial crisis of 2008-9 or indeed the deep recession of the early 1980s. Our main scenario projections suggests that the UK should narrowly avoid a recession over the next year, although we recognise that risks are weighted somewhat to the downside at present,” Hawksworth added.
Consumer spending growth is expected to hold up better, but could be sluggish compared to previous strong rates, dropping to nearly 1.3% in 2017 in this main scenario.
“This will be driven by a weaker pound pushing up import prices and squeezing the real spending power of households, as well as lower consumer confidence levels and slower jobs growth,” PwC said.
UK house price growth is projected to decelerate to nearly 3% in 2016 and about 1% in 2017 as a result of Brexit, though it will not lead to any major crash.
House price growth is expected to pick up again to nearly 4% in 2018 and an average of around 5%-6% per annum in the longer term as persistent supply shortages keep house prices rising faster on average than earnings.
Average UK house prices are expected to be 8% lower in 2018 than if Britain had chosen to remain in the EU.
The Brexit impact would differ according to region, with average house prices in London nearly £60,000 lower due to Brexit than they would otherwise have been by 2018, compared to a reduction of £10,000 in Scotland and £8,000 in the North East.
PwC senior economist Richard Snook said: “We think there are four main reasons why the Brexit vote will lead to a slowdown in the housing market in the short term: the deterrence of foreign investment, uncertainty regarding the future of EU nationals living in the UK, a reduction in consumer confidence and turbulence in the banking sector. While these factors will weigh heavily on the market in the short term, we expect a gradual recovery from 2018 onwards as market fundamentals reassert themselves.”