Brexit will see average UK income fall 0.5 per cent - EY

The projection from the firm’s economic forecaster, the EY Item Club, would mean a bigger drop in consumer spending as a result of the EU referendum result.

EY warned that although Brexit may deliver some positive news for consumers in the form of lower interest rates, heightened uncertainty, higher inflation and a weaker job market pointed to a gloomier overall outlook.

The Item Club said it expected the Bank of England’s monetary policy committee to cut interest rates to zero by November.

However, it also predicted inflation to rise above 2 per cent by the end of this year and 2.5 per cent in 2017 before slowing to 1.6 per cent in 2018.

And its summer forecast said UK unemployment was likely to rise to 7.1 per cent by the end of 2019, from 5 per cent currently.

This is expected to have a knock-on impact on household real disposable income and consumer spending, which is expected to increase by 2.2 per cent in 2016 before sliding to 0.6 per cent next year in the first decline since 2011.

EY Item Club chief economic adviser Peter Spencer said: “Consumers have for some time now punched above their weight in driving the economy’s expansion.

“However, worries about jobs are likely to see shoppers hold back on big-ticket purchases, such as cars and housing-related spending.

“At the same time, higher inflation off the back of sterling’s weakness will squeeze growth in real incomes.”