The UK economy will be weaker for the rest of this year and next following the vote to leave the EU.
That is the view of PwC senior economic advisor and former member of the Bank of England monetary policy committee Andrew Sentance, who told the British Hospitality Association summit in London: “I don’t buy into the argument that somehow this is a boost for the economy.”
However, he told the summit: “It’s important to recognise the world goes on and we have not left the EU yet.”
Sentance warned the economy would slow, but did not suggest it would fall into a recession, instead saying: “The fundamentals of the UK economy are strong.
“One of the fundamentals has been our trading relations with Europe. That has been disrupted and we have yet to see how it plays out.“If the political uncertainty is resolved quickly and if we end up negotiating something that keeps us close to the single market, we can limit the long-term costs. We just have to wait and see.
”But he said: “The economy is likely to be weaker than if there had been a Remain vote. PwC projected about 2% GDP growth this year and over the next few years if it was Remain.
“Now growth will be weaker in the second half of this year and 2017. We now forecast average growth of 1%-1.5% over the next two to three years.
”Sentance highlighted the political uncertainty, telling the summit: “It’s a big shock to the economic system. Business confidence has been negatively affected. [But] there are big political consequences.
”He also emphasised “what has not happened”, saying: “Parliament has not yet met and it has to agree to the trigger process [for leaving]. Technically, the referendum vote is advisory.
“There is no clarity from the Leave side. Some think we’ll have something similar to the European Economic Area like Norway. Others think we’ll have closer relations to the single market like Switzerland. Others say ‘We’ll trade with the rest of the world’.
“Article 50 of the Lisbon Treaty has not been triggered [for the UK to leave]. The earliest it could be triggered is the autumn, and it could be later.
”Sentance said: “What will happen? It’s murky – not just an uncertain economic climate but an uncertain political climate.
“The government has a majority of just 12. It’s vulnerable to defections, and half of Tory MPs supported ‘remain’ and half ‘leave’. There are a lot of developments to play out.
”He argued: “The more we can maintain close relations [with the EU], the better for trade and travel. It depends on the negotiations. We need to see how the scenarios play out.
“For tourism and hospitality there are two negatives and one positive. The negatives are the uncertainty, and the knock the UK’s image will have taken in Europe.
“The positive is that we have a weaker pound. I don’t welcome it as an economist, but it seems to have quite a bearing on discretionary travel when the UK is cheaper to visit. It could offset some of the negatives.
”Asked how the Bank of England may react, Sentance suggested it would be “a very bad idea” for it to follow the European Central Bank and Bank of Japan in moving to negative interest rates.