Five ways Brexit could have an impact on the UK economy

Economic growth

As it became clear that Britain was voting out on Friday, economists were quick to draw up a fresh outlook for the UK economy. If their renewed forecasts are correct, then the UK should brace itself for a bumpy ride ahead.

Businesses are expected to hold back investment, the cost of credit could rise and import prices may soar as uncertainty grips the nation. Together, these barriers could be enough to tip the UK economy back into recession, economists have warned.

IHS Global Insight is "substantially cutting'' its gross domestic product forecasts (GDP) to 1.5 per cent from two per cent for 2016 and to 0.2 per cent from 2.4 per cent for 2017.

Howard Archer, chief UK and European economist at IHS, said: ''Major economic and political uncertainty will be a fact of life for some considerable time, likely weighing down markedly on business and household confidence and behaviour, so dampening corporate investment, employment and consumer spending.

''Weaker asset markets and tighter credit conditions are seen further hampering UK growth, while the housing market could suffer a marked downturn. Financial sector activity in the City of London may well be hit quickly.''

However, Chancellor George Osborne has moved to dampen fears that the UK is heading for economic meltdown.

In a step to calm the markets, he insisted the UK economy is "about as strong as it could be to confront the challenge our country now faces" and said Britain remains "open for business".

He said it was "inevitable" that the UK economy would face an "adjustment" in the wake of the Brexit vote, adding: "It will not be plain sailing in the days ahead. But let me be clear - you should not underestimate our resolve."

Boris Johnson has also moved to assuage concerns that Brexit could deal a crippling blow to economic growth. Writing in the Daily Telegraph, he said: "The fundamentals of the UK economy are outstandingly strong - a dynamic and outward-looking economy with an ever-improving skills base, and with a big lead in some of the key growth sectors of the 21st century."

Interest rates

In the months leading up to the EU referendum vote, the Bank of England held strong to the view that the next move for interest rates would be up.

But city experts are now expecting the Bank to slash interest rates to zero within months as Britain grapples with the economic impact of Brexit.

JP Morgan believes the Bank's Monetary Policy Committee (MPC) will drive down rates to rock-bottom levels by the end of August as heightened uncertainty hits UK economic growth.

Analyst Malcolm Barr said: ''The Bank of England has argued that the policy consequences of a decision to leave are not clear-cut, because even as growth slows and unemployment rises, the fall in sterling will lift inflation.

''Nevertheless, we expect the Bank of England to be very active, initially in providing verbal reassurance that price stability and financial stability will be maintained and subsequently in delivering actual monetary easing.

''Even though the labour market is relatively tight, we expect the real economy effects to dominate in the Bank of England's thinking.''

All nine members of the MPC voted earlier this month to keep interest rates on hold at 0.5 per cent, where they have been since March 2009.

However, David Tinsley, UK economist at UBS, said the Bank may cut rates to zero by no later than February 2017, as Britain comes under fire from ''sharply lower growth''.

Markets

More than £50 billion was wiped off the value of the UK's biggest companies after Britain voted to leave the European Union on Friday.

The FTSE 100 Index closed down 3.15 per cent, as it recovered from a seven per cent plunge earlier in the session when David Cameron announced he would quit as Prime Minister by October following the Brexit vote.

London's top flight index lost more than £100 billion earlier in the session, while world markets descended into chaos as uncertainty spread across the globe.

The London market regained some poise on the day of the referendum result - finishing higher at the end of the week than at the start - after the Bank of England pledged to intervene by providing £250 billion to support the markets.

However, heavyweight financial stocks were under fire again on Monday, with some shares being temporarily suspended as the losses began to stack up.

Royal Bank of Scotland and Barclays fell more than eight per cent, causing trading in these shares to be halted for five minutes as automatic circuit-breakers spring into action.

London's premier index is expected to be shaken by bouts of volatility in the coming months as it awaits the finer details of Britain's exit from the European Union and news on who the next Prime Minister will be.

Pound in your pocket

British Retail Consortium chief executive Helen Dickinson said a prolonged fall in the value of the pound will affect import costs and ultimately consumer prices, ''but this will take time to feed through''.

Former chief executives of Tesco, Sainsbury's, Asda, Morrisons, Marks & Spencer and B&Q warned ahead of the referendum that a Brexit vote leading to a drop in the pound coupled with supply chain disruption would cause prices to spike, insisting that a UK exit would be ''catastrophic for millions of ordinary families''.

The retail union Usdaw has predicted that the average household could be £580 a year worse off as a result of Brexit, based on an expected fall in sterling together with likely new tariffs imposed on imported EU goods including food,drink and clothing.

Richard Lloyd, former executive director of consumer group Which?, warned consumers ahead of the vote that leaving the EU will give ordinary British families a worse deal for years to come.

Housing

Housing market experts expect the pace of house price growth to slow down and fewer sales to take place as potential buyers and sellers sit it out while the dust settles.

London, which has attracted strong interest from foreign property investors in recent years, is predicted to see a particularly strong impact.

But it has been suggested that the weaker pound could also encourage some foreign property investors to snap up homes in the capital while they appear relatively cheap. In the longer term though, a shortage of properties on the market is expected to support house prices.