Business

Five ways the Brexit vote could impact on our economy

German Chancellor Angela Merkel waits to welcome European Council President Donald Tusk for talks at the chancellery in Berlin on Monday

THE UK has embarked on a new era after voting to break free of the European Union. Here are five ways it could have an impact on the economy of Britain and Northern Ireland.

:: ECONOMIC GROWTH

If forecasts are correct, then the UK should brace itself for a bumpy ride ahead. Businesses are expected to hold back investment, the cost of credit could rise and import prices may soar as uncertainty grips the nation. Together, these barriers could be enough to tip the economy back into recession, economists have warned.

IHS Global Insight is "substantially cutting" its gross domestic product forecasts to 1.5 per cent from 2 per cent for 2016 and to 0.2 per cent from 2.4 per cent for 2017.

Howard Archer, chief UK and European economist at IHS, said: "Major economic and political uncertainty will be a fact of life for some considerable time, likely weighing down markedly on business and household confidence and behaviour, so dampening corporate investment, employment and consumer spending.

"Weaker asset markets and tighter credit conditions are seen further hampering UK growth, while the housing market could suffer a marked downturn. Financial sector activity in the City of London may well be hit quickly."

:: INTEREST RATES

In the months leading up to the EU referendum vote, the Bank of England held strong to the view that the next move for interest rates would be up.

But city experts are now expecting the Bank to slash interest rates to zero within months as Britain grapples with the economic impact of Brexit.

JP Morgan believes the Bank's Monetary Policy Committee (MPC) will drive down rates to rock-bottom levels by the end of August as heightened uncertainty hits UK economic growth.

Analyst Malcolm Barr said: "The Bank of England has argued that the policy consequences of a decision to leave are not clear-cut, because even as growth slows and unemployment rises, the fall in sterling will lift inflation.

"Nevertheless, we expect the Bank of England to be very active, initially in providing verbal reassurance that price stability and financial stability will be maintained and subsequently in delivering actual monetary easing."

:: MARKETS

More than £50 billion was wiped off the value of the UK's biggest companies after Britain voted to leave the European Union on Friday.

The FTSE 100 Index closed down 3.15 per cent, as it recovered from a 7 per cent plunge earlier in the session when David Cameron announced he would quit as Prime Minister by October following the Brexit vote.

London's premier index is expected to be shaken by bouts of volatility in the coming months as it awaits the finer details of Britain's exit from the European Union and news on who the next Prime Minister will be.

:: POUND IN YOUR POCKET

British Retail Consortium chief executive Helen Dickinson said a prolonged fall in the value of the pound will affect import costs and ultimately consumer prices, "but this will take time to feed through".

Former chief executives of Tesco, Sainsbury's, Asda, Morrisons, Marks & Spencer and B&Q warned ahead of the referendum that a Brexit vote leading to a drop in the pound coupled with supply chain disruption would cause prices to spike, insisting that a UK exit would be "catastrophic for millions of ordinary families".

The retail union Usdaw has predicted that the average household could be £580 a year worse off as a result of Brexit, based on an expected fall in sterling together with likely new tariffs imposed on imported EU goods including food,drink and clothing.

Richard Lloyd, former executive director of consumer group Which?, warned consumers ahead of the vote that leaving the EU will give ordinary British families a worse deal for years to come.

:: HOUSING

Housing market experts expect the pace of house price growth to slow down and fewer sales to take place as potential buyers and sellers sit it out while the dust settles.

London, which has attracted strong interest from foreign property investors in recent years, is predicted to see a particularly strong impact.

But it has been suggested that the weaker pound could also encourage some foreign property investors to snap up homes in the capital while they appear relatively cheap. In the longer term though, a shortage of properties on the market is expected to support house prices.

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