ECONOMIC growth in the UK could slump to around half a percentage point by 2020 in the event of a “disorderly” or no-deal Brexit, according to a leading business services group.

However, KPMG said a positive, or “friction-light” deal could see “modest growth” in the economy.

In its quarterly Economic Outlook Report, the group predicts the country’s gross domestic product (GDP) will grow by 1.3% this year and 1.4% next – the lowest rate of growth since the financial crash in 2008 and 2009.

This is based on the assumption that the UK Government will achieve a “relatively friction-free Brexit and transition deal”, said KPMG.

Should Brexit be disorderly, it predicts a rapid slowing of growth to 0.6% in 2019 and 0.4% in 2020.

Uncertainty over Brexit is not the only factor inhibiting growth, the report said. Poor productivity is still a drag with businesses finding it increasingly difficult to recruit because of dwindling spare capacity. The manufacturing sector is still seeing low export levels despite the pound’s weakness, and the economic environment is challenging, particularly in the retail sector.

On top of this, the report said workers can expect pay growth of only around 3%, despite high employment levels.

Catherine Burnet, Scottish regional chair for KPMG, said: “Brexit will have a lasting effect on the UK, but economically it isn’t the only game in town.

“Echoing the sentiment of the Scottish Government’s latest Programme for Government, our own discussions with clients continue to raise issues such as improving productivity, reducing regional economic disparity, and ensuring workers have the skills to meet employers’ needs.

“Bringing productivity growth back to pre-2008 levels alone could see the British economy grow by more than 2%.

“If negotiations between the EU and UK result in a relatively friction-free agreement, then growth is likely to remain around 1.4% in the medium term as a result of relatively weak productivity.

“If we see a disorderly Brexit, growth will obviously slow more dramatically. If negotiations end well, the Monetary Policy Committee [MPC] are likely to raise interest rates to 1% at the tail end of 2019. If no deal is reached, the MPC will need to use interest rates to soften the economic impact.”

The report said the uncertainty and risks of Brexit are likely to make the MPC cautious in the months ahead. It predicts that rates will stay on hold until November 2019, with another 0.25 percentage point rise scheduled if Brexit negotiations proceed smoothly. Rates are likely be cut to at least 0.25% if negotiations are not successful, with additional measures to be announced by the Bank of England to ease any significant pressure on the banking sector.

The outlook also shows Scottish house prices are bucking the UK trend with higher growth this year than last.

In the UK as a whole, KPMG says the housing market will see moderate growth as prices start to rebalance across regions, slowing from 4.5% in 2017 to 2.6% in 2018, 2.0% in 2019, and 1.6% in 2020

However, in Scotland, with increasing investment and relatively modest valuations, KPMG expects to see growth of 4.9% in 2018, compared to 4.5% in 2017.

That growth is expected to continue, albeit at decreasing levels, through to 2023.