The UK economy would be 3.5% smaller with the new Brexit deal compared to continued EU membership, the National Institute of Economic and Social Research (NIESR) said.
In the near term, loosened fiscal policy as well as expected cut in interest rate next year would underpin economic growth.
The think tank said the economic outlook is clouded by significant economic and political uncertainty and depends critically on the nation's trading relationships after Brexit.
The economy is forecast to expand 1.4% each this year and next based on the assumption that the terms of EU trade remain unchanged.
The institute said risks to growth continue to be weighted to the downside, although not as severe as in the previous forecast given the reduced likelihood of a no-deal Brexit.
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