Brexit: PwC warns on recession risk from poor progress on negotiations

The UK faces a risk of recession if it makes little progress in early Brexit negotiations with the European Union, PwC has warned in its latest economic outlook.

The consultancy firm’s base case scenario is that negotiations go smoothly and UK GDP growth hits 1.5 per cent this year and 1.4 per cent next year.

However, it warns UK GDP growth could go negative if the global outlook worsens and if early Brexit negotiations suggest the country will fall back on WTO rules and tariffs with the EU.

This would deepen and prolong the period of uncertainty around the outcome of Brexit, reducing investment, jobs and growth, the PwC report says, although it describes the outcome as a “mild technical recession” with negative growth lasting the first two quarters.

Alternatively, if good early progress is made in Brexit negotiations and there are strong favourable trends in the US and eurozone, PwC forecasts the economy could expand at 1.9 per cent this year and 2.6 per cent in 2018.

PwC describes either scenario as possible, but not likely, while warning risks to growth are weighted to the downside due to political and economic uncertainties related to Brexit.

It recommends businesses prepare contingency plans for less favourable Brexit outcomes, but “without losing sight of the more positive possibilities for the UK economy should these downside risks not materialise”.

PwC says UK economic growth held up better than expected in the six months following the Brexit referendum, but rising inflation, which squeezed household spending, saw growth slow in the first half of 2017.

UK GDP growth in Q1 was 0.2 per cent – the worst in the European Union.