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Bloomberg
The U.K. economy may be heading for its first recession since 2009, with economists slashing their forecasts in the wake of the Brexit vote and now seeing two quarters of contraction this year.
While the 0.1% decline in gross domestic product anticipated in each of the third and fourth quarters is modest, it will mark the end of more than three years of unbroken growth.
The changed outlook since the U.K. voted to leave the EU has the Bank of England — which had been on a slow track toward interest-rate increases — now contemplating expanding stimulus for the first time since 2012.
While the impact is only showing up so far in measures of consumer and business confidence, that could ultimately spill over into key drivers of growth in the coming months, stymieing the economy.
Even with some predicted BOE stimulus, the probability of Britain sliding into its first recession since 2009 stands at 40 percent, up from 18 percent in June, according to the survey, which was conducted after the central bank’s July 14 policy announcement.
Governor Mark Carney has indicated that some easing may be required, and the majority of economists surveyed predict the BOE will respond to the slowdown with one interest-rate cut of 25 basis points before the end of the year, taking the already record-low rate to 0.25 percent. The central bank will also boost its quantitative-easing program, currently £375 billion, by £10 billion in August.
The BOE’s next policy announcement is Aug. 4, when the Monetary Policy Committee will also publish new growth and inflation forecasts.