The British economy will grow by 1.0 percent in 2017, said the Organisation for Economic Cooperation and Development as it published revised forecasts.
In June, before Britain’s EU referendum, it had projected the economy would grow by 2.0 percent.
Growth in 2017 is likely to be “well below the pace in recent years and forecasts prior to the referendum,” the OECD said.
In addition, “uncertainty about the future path of policy and the reaction of the economy remains very high and risks remain to the downside.”
Britain’s finance minister, Philip Hammond, said on Twitter the “underlying strength in the UK economy will support growth this year”.
While he acknowledged “that there may be some difficult times ahead”, Hammond said the government had the tools to support the economy as Britain adjusted to its new relationship with the EU.
The weaker outlook for Britain, the second-biggest economy in the European Union, will also push down global output, which is stuck in a “low-growth trap,” the organisation warned.
Here’s my reaction to the OECD’s new Economic Outlook. pic.twitter.com/MGcjDO9osR
— Philip Hammond (@PHammondMP) September 21, 2016
Global growth is seen at 2.9 percent this year, rising to 3.2 percent in 2017, the OECD said, trimming both forecasts by 0.1 percentage points.
The effects of Brexit are offset by a “gradual improvement in major emerging market commodity producers,” according to the OECD.
However, while the Brexit impact on the rest of the euro area has been “modest” so far, the OECD said the spillover will result in “more negative effects” next year.
“The Brexit fallout in terms of growth will hit the euro area through the trading relationships being uncertain and through exchange rate effects,” said the OECD’s chief economist, Catherine Mann, in presenting the report.
The British pound has depreciated by around 10 percent since the June 23 referendum, meaning EU goods have become more expensive for consumers in Britain.
The organisation downgraded its 2017 forecast for the 19-nation eurozone by 0.3 percentage points, projecting growth of 1.4 percent after 1.5 percent this year.
The key to avoiding significant economic problems will be quickly sorting out Britain’s trading relationships with its partners, the OECD added.
Britain’s government has yet to formally demand talks on leaving the EU, but it is expected to do so early next year. It will then have two years to negotiate its new relationship with the bloc, as well as strike trade deals with other nations.
Mann said the OECD doesn’t see a return to faster global growth unless governments hike spending as businesses are reluctant to invest in this slow-growth environment.
“But if there is a collective fiscal expansion, that would be the signal to promote growth, catalyse business investments … and we get out of the low-growth trap,” she said.