By Richard Johnstone | 20 October 2014
UK economic growth is set to slow next year as a result of increasing political uncertainty from constitutional reforms and the impact of a possible referendum on leaving the European Union, one forecaster has said.
The EY ITEM Club, which predicts the UK’s growth prospects using the same model as the Treasury, said today that risks at home and abroad would lead to growth slowing from the 3.1% projected this year to 2.4% in 2015. A further decline to 2.3% is then anticipated in 2016.
This comes as a result of business investment falling as the political uncertainty at home and abroad is now the top worry for firms, Peter Spencer, chief economic advisor to the EY ITEM Club, said.
Among the areas of concern were the as-yet-unknown constitutional changes likely across the UK following the no vote in the Scottish independence referendum, as well as the imminent general election and Conservatives’ proposed EU referendum in 2017.
Growing geopolitical risks, in particular those stemming from the situation in the Ukraine, which have dented business confidence in the UK’s key European markets.
Spencer said that although the forecast for GDP growth was still relatively good, what had changed were the global risks surrounding the forecast and the headwinds facing investment by firms.
‘Looming political uncertainty risks denting corporate confidence, the question now is how will these risks play out.’
Mark Gregory, EY’s chief economist, added that, on the ground, businesses were becoming nervous.
‘They are faced with an uncertain domestic political situation, while there are renewed concerns about their key export markets. They haven’t pulled on the reins just yet, but there is a definite sense of caution. This is a time for cool heads.’
