The National Institute of Economic and Social Research said that the U.K. economy would shrink 3.5% each year as Prime Minister Boris Johnson executes his Brexit deal. To address this, policymakers should start considering interest rate cuts.
“The U.K. economy will continue to suffer what we’re calling a ‘slow puncture,”’ Niesr Director Jagjit Chadha said. “No pop, no bang, but a slow puncture, as investment is deferred and delayed in the face of uncertainty.”
Johnson’s deal would make the U.K. poorer over the next ten years and reduce tax revenue by 2.5%, the forecasts said. The study also noted the Treasury Department saying that the fiscal policy is in disarray and it has lack of strategy to countermeasure economic setback brought about by Brexit.
Economist Arno Hantzsche said that the Bank of England reducing rate is a growing possibility. He also cited inflation below the 2% target as well as the spiking of pound.
The central bank is set to announce its latest policy decision and report growth forecasts and inflation on Nov. 7.