LONDON: The British economy will slow down sharply next year due to political uncertainty and a potential referendum on membership of the EU, a leading forecaster said on Monday.
In an autumn forecast released after a turbulent week on world markets, EY ITEM Club said gross domestic product growth would slow to 2.4 percent in 2015, after 3.1 percent growth this year.
The forecasts are below the Bank of England's outlook of 3.5 percent growth in 2014 and 3 percent growth in 2015, as well as International Monetary Fund and CBI forecasts.
"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," said EY ITEM Club chief economic adviser Peter Spencer.
"Looming political uncertainty risks denting corporate confidence, the question now is how will these risks play out?"
The report pointed to a faltering recovery in Europe, a bad outlook for exports and manufacturing, as well as uncertainty over a general election in May.
The vote is expected to be closely fought between the Labour and Conservative parties, with the advance of the anti-EU, anti-immigration UK Independence Party threatening to take seats from both parties.
Under pressure from UKIP and the eurosceptic wing of his Conservative Party, Prime Minister David Cameron has vowed to re-negotiate Britain's membership of the European Union and an in-out referendum in 2017 if he is re-elected.
Overseas risks such as a crisis in Ukraine have also dampened confidence in important European markets, the report said.
In response, the British Treasury said that the report "highlights the growing risks to the recovery that are emerging from the rest of the world economy and particularly our largest trade partner, the euro area."
"We have to recognise that the UK is not immune to these problems, which is why we will continue working through the plan that is building a resilient economy," a Treasury spokesman said.
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