The news that the UK has decided to leave the EU may have serious repercussions for its economy, as sterling has already plunged to a 30-year low against the dollar.
Global economics think tank, IHS Global Insight, has said Brexit is “bad news for the UK economy”. Even supporters of the leave campaign acknowledged there will be a near-term hit to the economy due to heightened uncertainty affecting business and consumer activity.
Financial markets have not viewed the UK vote favourably, as seen with the decline in sterling while the FTSE is set to suffer substantial losses.
Following the result of the referendum, IHS has cut back its growth forecasts for the UK economy to 1.5% (from 2.0%) for 2016, 0.2% (from 2.4%) for 2017 and 1.3% (from 2.3%) for 2018.
David Page, senior economist for Axa Investment Managers has also revised his GDP forecast down for 2017, to 0.4% from 1.9%
Axa IM also thinks that the result may spur the Bank of England into action. “We expect the Bank of England to cut interest rates from 0.50% to 0.25% before long and it could also very well resuscitate quantitative easing,” said IHS Global Insight.
Page, at Axa IM, also said that the Bank of England could ease monetary policy, predicting two 0.25% rate cuts before the end of the year and £50-100 billion (€65-130.5 billion) of quantitative easing.
The gloomy picture drawn by IHS continued when it said the Bank of England’s position may well be made even harder if there was a sharp flight of capital from the UK after the EU exit vote. This would exert pressure for higher interest rates to attract the inward investment that is needed to finance the large current account deficit.
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