S&P Global Ratings revises Europe's economic outlook

The US ratings agency, Standard & Poor’s (S&P), revised Europe economic outlook in the wake of Brexit.

S&P said the UK will barely escape a full-fledged recession caused by Brexit, but the downside risks are numerous. It noted that Brexit will cause a drag on the UK economy of 1.2 percent in 2017 and 1.0 percent in 2018. It said that the weaker pound is likely to have mixed effects on UK economic growth in helping trade but stirring up inflation.

Bank of England meets on July 14 to decide policy measures and investors are debating over whether the central bank will ease policy or wait until August Quarterly Inflation Report, when new post-Brexit forecasts will be ready. S&P expects the Bank of England to slash its policy rate to zero by the very end of 2016 and restart its quantitative easing program in 2017, despite a pickup in inflation caused by the weaker pound.

S&P said that despite the Brexit shock likely to be concentrated in the UK, it will have important ramifications for the rest of Europe, especially the eurozone. Despite the increased uncertainties and the hit to foreign demand resulting from Brexit, S&P said eurozone recovery unlikely to stall. S&P estimates the Brexit effect to cost the eurozone 0.8 percent of GDP over 2017 and 2018.ur