Political uncertainty at home and abroad now tops the worry list and is set to dampen business investment and slow the pace of UK growth, according to an influential economic forecaster.
However, falling commodity prices provide a silver lining that will support activity in the UK’s major export markets and keep inflation very low.
Uncertainty around constitutional reforms in the UK, an imminent general election and the prospect of an EU referendum in 2017 risk undermining the strides that investment made over the past year, when it made up more than half of the growth in demand, according to the EY ITEM Club Autumn Forecast.
The report also points to the growing geopolitical risks, in particular those stemming from the situation in the Ukraine, which have dented business confidence in the UK’s key European markets.
The forecast says business investment will grow by 9 per cent in 2014, before tempering to 5.8 per cent in 2015. With the consumer also pausing for breath, GDP growth is predicted to slow to 2.4 per cent in 2015, down from the 3.1 per cent expected this year.
Peter Spencer, chief economic advisor to the EY ITEM Club, said: “Let’s be clear, the forecast for GDP growth is still relatively good. What has changed is the global risks surrounding the forecast and the headwinds facing investment by firms.
“Looming political uncertainty risks denting corporate confidence, the question now is how will these risks play out?
“I expect caution to become the order of the day.”