UK ECONOMY SLOWS ON BREXIT UNCERTAINTY
By James Malliaros
After a marathon week, the British Parliament has voted in favour of Prime Minister May’s motion to extend the exit negotiations from the deadline on 29 March to 30 June. If that deal is rejected again, (it has rejected twice already) then the extension will be for a currently undefined longer period, likely set by the EU.
All 27 EU country leaders need to agree to any delay unanimously. Other motions that were put forward, such as holding a second referendum or Parliament taking control of the Brexit process were rejected by most members of Parliament. Nevertheless, the path forward remains uncertain and the default option, without further agreements, remains a no deal Brexit.
However, given that they were not able to agree on Brexit after two years and nine months of discussions since the original vote in June 2016, it is most unlikely that any agreement would be forthcoming. Short of the PM being ousted or replaced or another Brexit referendum held, it is hard to see how this issue can be resolved, as even then the debates and arguments would probably remain the same.
Beyond the politics of Brexit and the economic damage expected from the UK’s messy divorce from the European Union, Britain’s economy continues to hold up fairly well.
Although UK GDP growth has slowed over the past year, data shows that as of Q4 2018, the British economy has grown faster than all of its G7 peers, except for the US – this includes Japan, Germany, France, Italy and Canada. In addition, the main stock market index (FTSE-100) reached an all-time high back in May 2018.
Likewise, the country’s unemployment rate has remained at 4.0%, the lowest level since the 1970s. Inflation that shot up due to the depreciation of the pound sterling (resulting from the June 2016 vote) has returned to the Bank of England’s (BoE) 2.0% inflation target, despite accelerating wages growth.
However, the economic data is not all good, highlighted by weakening business investment over the past few months.
In addition, indicators point to a continued deterioration in the growth outlook, highlighted by the BoE downgrade of the UK’s growth forecast to 1.2% from 1.7% due to Brexit uncertainty.
Unless the Brexit issue is settled and some certainty provided, financial markets will continue to speculate on the outcome of negotiations and remain volatile.
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