U.K. economic growth is set to lag all other European Union countries this year and next, even assuming Britain maintains the same trading relationship with bloc after Brexit.
Growth will slow to 1.4 percent this year and 1.1 percent in 2019, the European Commission said Wednesday in its winter economic forecasts. Inflation is squeezing incomes and uncertainty is weighing on business investment, the report said. Consumer prices will rise 2.7 percent this year before easing to 2 percent in 2019.
The projections for the U.K. are based on the “purely technical assumption of status quo in terms of trading relations” in 2019, the report said.
Until recently, that seemed likely to be the case, but Prime Minister Theresa May’s government has since raised several objections to the Commission’s position, making a March deadline for agreeing the terms of a transition phase look increasingly out of reach.
Britain’s economy has benefited from buoyant trade, the Commission said, echoing similar analysis from the National Institute of Economic and Social research. The boost from trade will likely moderate in 2018 as the impact of the drop in the pound unwinds.
“Business investment is projected to remain relatively weak while net exports are forecast to moderate in line with export markets,” the Commission said. “The positive effect of lower consumer-price inflation on consumption is expected to be offset by an increase in the household savings rate.”