‘Brexit economic news continues to be bad, horrific or dire’ – experts debate data | Business


David Blanchflower

Professor of economics at Dartmouth College in the United States and member of the monetary policy committee of the Bank of England from 2006 to 2009

Brexit economic news continues to be bad, horrific or dire. The growing risk of a no-deal Brexit is inevitably hitting business activity. Oh what a surprise!

The Bank of England, after warning of dire consequences of a disorderly Brexit, kept rates at 0.75% at its December meeting last week. However, he warned that since the last meeting of the Monetary Policy Committee (MPC) a month ago, “Brexit-related uncertainties have intensified”. He noted that these uncertainties, coupled with the slowing global economy, have weighed on the short-term outlook for UK growth. The MPC also said its market contacts saw Brexit uncertainty as having had a negative impact on the pound.

The FTSE 100 has fallen and the FTSE 250 – which has more UK companies focused on the domestic market than international companies in the FTSE 100 – is down from its peak this year of 21,324 in June and its peak in November from 18,719, dropping to 17,446 on the 20 December. Investors are scared.

The 0.6% GDP growth confirmed by the Office for National Statistics for the third quarter looks like a peak and it’s likely down from here. Business investment, which has likely been hit particularly hard by this Brexit-related uncertainty, has fallen in each of the past three quarters and will inevitably remain weak going forward. Retail sales, which rose 1.4% from October, were better than expected, but look set to weaken sharply. Several retailers, however, have warned of tough trading this winter. Sports Direct boss Mike Ashley said November was “incredibly bad”, while Superdry and online retailer Asos also warned of dismal trading.

The Brexit vote hit consumers in their pockets and hurt the economy. Meanwhile, fears of collapsing without a deal next year are reducing demand for larger purchases. The future is too uncertain to keep spending.

According to the ONS, real weekly wages have risen for the fifth consecutive month, averaging £497 a week at constant 2015 prices, but remain 5% below their peak of £522 in February 2008, just before the start of the recession. Bank officials reported that wage growth was only marginally higher than it was a year ago. Additionally, compensation experts XpertHR reported that wage settlements were around 2% at the start of 2018 and increased to 2.5% by mid-year, but have now fallen back to 2%.

Political chaos and incompetence have market consequences.

Andrew Sentence

Independent business economist, member of the MPC from 2006 to 2011

The past month has seen quite a few negative indicators for the UK economy. Consumer confidence is weak, car sales and motor vehicle production are down, and business surveys point to slowing growth. Although retail sales in November were more positive than expected, this is a very volatile indicator. At the same time, confidence in the financial markets has deteriorated and political uncertainty around Brexit has increased sharply.

After strong growth in the third quarter of this year, it is highly likely that economic progress came to a virtual standstill in the fourth quarter. Job growth is now very weak. Lower oil prices helped consumers by lowering inflation, and wage growth accelerated. But the general climate of political and economic uncertainty is holding back the progress of the British economy.

It should also be noted that although inflation has come down slightly, it has been above target for almost two years. So while short-term inflation developments may be favorable to consumers, the longer-term situation is not as positive.

Brexit uncertainty continues to be a major overhang for the UK economy. The worsening political crisis shows few signs of easing and the business community shows growing signs of concern. Talk of a no-deal Brexit adds to the general climate of uncertainty for consumers and businesses.

The current quarter and the first quarter of next year should see very slow growth in the UK economy, if we get any growth. The growth spurt at the start of the year has come to an end and the negative effects of Brexit are expected to weigh heavily on the UK economy until next summer. Then businesses and consumers can take stock in light of any Brexit deal that has been reached. For now, businesses and households should remain extremely cautious.

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