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Recession averted in UK, S&P says

Staff Writer |
Britain averted an economic recession after the referendum vote, but slower growth still lay ahead, S&P Global Ratings said.

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"In short, the sky hasn't fallen on either side of the Channel, contrary to concerns that the U.K. would soon fall into recession, precipitating a marked slowdown in the rest of the European Monetary Union," said Jean-Michel Six, S&P Global Ratings' chief economist for Europe, the Middle East, and Africa.

That was as S&P had forecast; however, the ratings agency still expected the economy to take a substantial hit and slow over the next two years.

The cumulative impact between now and the end of 2018 would be 2.1 percentage points, with the housing market and exports expected to play key roles.

To take note of, the Bank of England's "readiness to act" had succeeded in appeasing gilt markets so far, S&P said.

On the upside, the analysts said housing in the UK would experience a 'soft landing' over the next 12 months, thanks to very favourable financing conditions.

However, the boost to real gross domestic product from sterling's depreciation by the middle of 2018 would be only 1.2%, S&P said, providing a lift to real goods exports of roughly 7%.

S&P projected the UK economy would expand by 1.8% in 2016, followed by growth of 1.0% in 2017 and 1.1% in 2018.

Euro area growth would take less of a hit than the UK, S&P said, but against a context of already sluggish growth.

The UK's decision to leave the European Union would subtract 0.7 percentage points from the rate of growth of the Eurozone, but it remained to be seen how the opposing forces of easier monetary conditions and political uncertainty would play out.

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