The Organisation for Economic Co-operation and Development said Monday that growth in the U.K. is expected to fall to just 1% in 2018 as the country prepares for its goal of leaving the European Union.
U.K. GDP should advance 2% this year, the OECD said, a 0.2 percentage point upgrade from its September assessment, thanks to the Bank of England's moves to shore up the economy since the referendum, before slowing markedly over the following two years to 1.2% and 1%. The Paris-based think tank also warned that rising inflation will impact purchasing power and cautioned there is still considerable uncertainty around the trade deals Britain will negotiate.
The outlook offers a sharp contrast to its views on the global economy, which it sees growing by 2.9% in 2016, 3.3% in 2017 and 3.6% in 2018 even as it warned that protectionist policies could impact the advance.
"Protectionism and the inevitable trade retaliation would offset much of the positive effects of proposed fiscal initiatives on domestic and global growth," said OECD Chief Economist Catherine Mann said in a statement. "It would also likely raise prices, harm living standards and leave countries in a worsened fiscal position. Trade protectionism may shelter some jobs, but it will worsen prospects and lower well-being for many others."
The OECD's predictions mark some of the worst forecasts for the U.K.'s economy as it prepares to leave the European Union. Prime Minister Theresa May said the government aims to trigger the exit clause in March 2017.
Last week, the Office for Budget Responsibility predicted potential economic growth in Britain over the next five years will be 2.4 percentage points lower than if the U.K. had voted to remain the European Union.
It cut growth forecasts for the country to 1.4% from 2.2% and they expect growth in 2018 to be 1.7% down from 2.1%.
U.K. Finance Minister Philip Hammond said the slowdown was due to "lower investment and weaker consumer demand, driven, respectively, by greater uncertainty and by higher inflation resulting from sterling depreciation," in last week's fall budget.
The global forecasts come as the British government faces another legal challenge to exiting the EU. Pro-European group British Influence said that it would challenge the government on leave the European Economic Area. It argues that the EEA, a wider single-market group including three countries not in the EU, is not the same as leaving the EU. British Influence is saying that lawmakers should vote on leaving the EEA.The British Supreme Court next week will start hearing a challenge to the Prime Minister unilaterally triggering the exit after a lower court last month said that it was unconstitutional for her to do so.