October 20, 2014 / 6:02 AM / 3 years ago

Political worries grow for UK, forecasters say

LONDON (Reuters) - Business investors are increasingly worried about political risks in Britain, including the outcome of a general election in May and a possible referendum on European Union (EU) membership, an economic forecasting firm said.

In a report due to be published on Monday, EY ITEM Club predicted growth in business investment next year would slow to 5.8 percent from 9 percent in 2014.

That would be barely half the rate forecast by the Bank of England (BoE) for next year and would contribute to an expected cooling in overall economic growth in 2015.

“The first wave of investment is now well under way, but on the ground businesses are becoming nervous,” said Mark Gregory, chief economist at accountancy firm EY [ERNY.UL] which sponsors the EY ITEM Club.

“They haven’t pulled on the reins just yet, but there is a definite sense of caution.”

Besides a slowdown in key export markets in the euro zone, investors are worried about the outcome of May’s election, which offers the starkest differences in the policies of the two main parties in more than 20 years, EY said.

If the Conservative Party is returned to power, its plan to hold a referendum on EU membership is likely to raise fresh uncertainties, especially among car-makers, which depend heavily on the EU for sales, it said.

Wrangling over plans to devolve more powers away from Westminster and the rise of the anti-EU UK Independence Party could affect Britain’s reputation for political stability and certainty, the firm said.

EY said it expected British economic growth to slow to 2.4 percent in 2015 from 3.1 percent this year. In August, the BoE forecast growth of 3 percent for 2015, but on Friday its chief economist said the outlook had darkened.

Reporting by William Schomberg and Ahmed Aboulenein; Editing by Larry King and David Holmes

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