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Brexit expected to lead the UK into recession within two years, investor survey says

  • 56 percent of private equity executives and 57 percent of distressed debt investors said they expect a recession in the next two years.
  • The International Monetary Fund (IMF) warned Wednesday that the U.K. needs to find ways to make its economy more efficient and that Brexit had already begun hurting the economy.

A majority of private equity executives and distressed debt investors are expecting a recession to hit the U.K. economy in the next two years, according to a new report.

The country's decision to leave the European Union is cited as the main reason that there could be an economic downturn.

"It looks like the British economy is already suffering its effect with higher inflation, lower consumer spending, in particular around the Christmas trading period, and growth rates well below other developed economies," Carlo Bosco, managing director of Greenhill investment bank, said in the European Distressed Debt Market Outlook 2018 report, released by analysis firm Debtwire Wednesday.

56 percent of private equity executives and 57 percent of distressed debt investors said they expect a recession — defined as two consecutive quarters of negative economic growth — in the next two years. Most of the respondents predicted the recession will hit in 2018 rather than in 2019.

The International Monetary Fund (IMF) warned Wednesday that the U.K. needs to find ways to make its economy more efficient and that Brexit had already begun hurting the economy.

"Higher prices, caused by a weaker pound, have limited increases in people's spending, and uncertainty about the future relationship with the EU has kept some business investments on hold," the IMF said in its annual report on the British economy.

The Fund added that though Brexit may take many years to fully materialize, it will affect all sectors of the economy. In its baseline scenario the Washington-based institution estimated a 40 percent reduction in net exports of financial services to the European Union, given the government's decision to exit the single market – the region where goods, people and services move freely in Europe.

"With political instability creeping up in the U.K. and the constantly changing situation in Europe, there are real changes of the EU seeing the beginning signs of recession early 2019," a partner at a U.K-based equity firm said in the survey.

Investors outside the U.K. are more negative on the prospects of the U.K. economy compared to those based in the country. Only 33 percent of those surveyed living outside the U.K. said they do not envisage a recession in the next two years.

The survey questioned 80 distressed debt investors and 50 private equity executives via telephone.