Julia Irvine 14 Dec 2018 01:08pm

No-deal Brexit will slam brakes on growth

ICAEW has warned that a decision by parliament to reject the Brexit withdrawal agreement is likely to undermine the chance of stronger economic growth in 2019

In its latest economic forecast, it says that the UK economy is on course to grow by 1.6% over the coming year, thanks to a predicted bounce back in business investment and chancellor Philip Hammond’s decision to relax his fiscal stance. However, this more optimistic outlook is predicated on businesses knowing how the relationship with the EU will proceed post Brexit.

“The need for greater stability cannot be overstated,” said ICAEW chief executive Michael Izza. “Businesses have been unable to plan ahead, and that is a difficult environment for investment.

“It is crucial that we avoid a disorderly exit and the activation of costly and disruptive contingency measures,” he added.

“The potential adverse impacts on business and the wider economy could be severe and are not helped by the decision to delay the vote on the withdrawal agreement.”

The lack of certainty about Brexit ensured that growth was subdued over 2018. ICAEW predicts that the annual rate will be 1.2%, particularly given the fact that output flat-lined in August and September and increased by just 0.1% in October.

Next year’s growth rate should improve to 1.6% on the back of falling inflation and increasing domestic spending power, the release of business investment in response to a Brexit deal, and fiscal loosening. A hard Brexit though will put the brakes on this modest growth.

ICAEW suggests that in 2018 business investment – which is being held back through lack of certainty about the outcome of the Brexit negotiations – will fall by 0.4%. This situation is likely to be reversed in 2019, though, provided  a UK-EU deal is approved. Even then, it will only lead to a slight rise in investment over the year to 0.5% - but at least this is back in positive territory.

The jobs market will continue to shrink over 2019 while the number of people in work will increase at a slower rate than expected – at 0.4% instead of the predicted 1%. Annual growth in average pay will slow down significantly in the face of globalisation and the threat of automation: over 2019, it will grow at 2.5%, compared to 2.4% in 2018.