Business

Economy moves into reverse following Brexit vote

GDP fell last month following the Brexit vote while other official figures suggested that the UK's trade gap widened again in June after imports reached a record high

THE UK's economy slammed into reverse last month amid the fall-out from the Brexit vote, according to an influential think-tank.

The National Institute of Economic and Social Research (NIESR) estimates that gross domestic product (GDP) fell by 0.2 per cent month-on-month in July.

For the three months to July, NIESR said the economy eked out growth of 0.3 per cent in a "marked economic slowdown" on the second quarter, when GDP increased by 0.6 per cent.

A report from NIESR last week warned there was a 50/50 chance of Britain falling into recession - two quarters in a row of falling GDP - over the next 18 months.

James Warren, a research fellow at NIESR, said: "The third quarter has got off to a weak start, with output declining in July.

"Our estimates suggest that there is around an evens chance of a technical recession by the end of 2017."

The Bank of England last week predicted the UK was set to avoid recession after it slashed interest rates to 0.25 per cent from 0.5 per cent - the first rate reduction for more than seven years.

It also delivered an emergency economy-boosting package, with £60 billion of extra quantitative easing, a £10bn corporate debt-buying programme and a scheme worth up to £100bn to encourage banks to lend.

But the bank warned over a "material slowdown", higher unemployment and falling house prices over the next year.

Its latest forecasts see the economy almost flat-lining at 0.1 per cent growth in the third quarter, while it made record downgrades for 2017 and 2018.

The bank kept its growth forecast at 2 per cent for 2016, thanks only to a better-than-expected first half, but it sharply reduced the outlook to 0.8 per cent in 2017 and 1.8 per cent in 2018.

It had previously pencilled in growth of 2.3 per cent in both 2017 and 2018.

NIESR's predictions suggest growth will hit 1.7 per cent overall this year with a decline of 0.2 per cent in the third quarter and risk of "further deterioration".

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