Chance of UK recession at 50%

There is a 50/50 chance of Britain entering a recession by the end of 2017, according to a new report from think tank the National Institute of Economic and Social Research (NIESR).

The think tank expects the economy to slow to around 1% annual growth in 2017, from 1.7% this year.

It estimates the probability of a recession (at least two consecutive quarters of GDP declines) occurring sometime before the end of 2017 to be at around 50%.

There has been much discussion about whether the UK will enter recession in the wake of the decision to leave the EU. Initially, reports seemed to suggest that the economy was looking relatively resilient.

Economic deterioration

The Office for National Statistics (ONS) recently released its second estimate putting GDP growth in the second quarter of 2015 at 0.6%, but NIESR's report shows that most of this growth is due to a strong performance in April, with the economy falling back somewhat in the subsequent two months.

This indicates a deterioration in economic performance, according to the think tank. But it will be some time before the "hard" or official data are published.

Data since the referendum are still sparse and largely of "soft" evidence such as surveys of business sentiment and consumer confidence.

Yesterday, Bank of England governor Mark Carney defended the bank's move to cut interest rates to 0.25% in an effort to mitigate the impact of Brexit.

Speaking to a group of MPs on the Treasury Select Committee, he said the bank took "timely, comprehensive and concrete" action, which acted to "support, cushion and help the economy to adjust".

The NIESR report comes as a reality check to those who may think the worst is already past.

Rebecca Piggott, research fellow at NIESR, says: "The evidence on the current state of the economy post-referendum is limited, but on balance these data suggest that the UK economy is in the midst of a slowdown. We estimate that in the three months to August the UK economy grew by 0.3%."

This article was originally published by our sister magazine Money Observer here

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