Global slowdown threatens to worsen impact of no deal Brexit
Britain is preparing for Brexit in little over two months against a backdrop of faltering domestic growth and a global economic slowdown, which threatens to compound the consequences of a no-deal exit, according to Guardian analysis of economic news over the past month.
UK plc has begun to enact emergency plans for crashing out of the EU, with Westminster gridlocked since Theresa May suffered the worst government defeat of any British PM in the democratic era over her withdrawal plan.
P&O, the 182-year-old British maritime operator, will re-register under the Cypriot flag to avoid disruption, Sony is to move its European headquarters from London to Amsterdam, and retailers from Dixons Carphone to Pets at Home have announced plans to stockpile supplies in the event of chaos at British ports.
These moves come amid growing signs of a weakening world economy, with slowdowns from China to Europe. And the US-China trade dispute is acting as a handbrake on world trade, just as the UK needs to strike trade deals to help offset the disruption of leaving the EU.
Amid already falling levels of growth in Europe and elsewhere, the International Monetary Fund is warning that a no-deal Brexit and a steeper slowdown in China are the biggest risks to the global economy in 2019.
Writing in the Guardian, Andrew Sentance, a former member of the interest rate-setting monetary policy committee (MPC) at the Bank of England, said: “It is not a good backdrop for Brexit. The prospect of a no-deal-Brexit is very damaging for the UK economy.
“A ‘no-deal’ would signal that our government had lost control of events, and was complicit in a chaotic outcome to the Brexit process.”
To gauge the impact of Brexit on a monthly basis, the Guardian is monitoring eight economic indicators, along with the value of the pound and the performance of the FTSE 100.
Economists made forecasts for seven of those barometers before their release, and in four cases the outcome was worse than expected. In two cases, the result was better than forecast, and one was in line with expectations.
The Guardian’s latest monthly tracker of economic news does, however, reveal some bright spots for the British economy. The rise in stockpiling has inadvertently boosted business activity, which could benefit the wider economy as manufacturers produce more goods in preparation for no deal.
Wages are growing at the fastest rate since the 2008 financial crisis and unemployment has dropped to the lowest level since the mid 1970s, while inflation has cooled, thanks to falling petrol prices, which is helping to rebuild the spending power of UK households.
Employment rose by 141,000 in the three months to November, although economists warned that two-thirds of the increase was in self-employment and probably reflected a Brexit-related concern among companies over hiring permanent employees.
Also writing in the Guardian, David Blanchflower, another former MPC member, said: “Most other advanced countries, including the US and Germany, have seen declining rates. The concern is that these new self-employed jobs are low paying and possibly short-lived.”
He added: “Brexit uncertainty makes it hard to see much improvement in the economic data anytime soon, although ditching no-deal would likely be an upside surprise.”
The deterioration in the global economy has had a knock-on impact on the UK, at a time when some Brexiters are pushing for a no-deal exit with a promise of more free trade deals with the rest of the world.
The UK’s motor industry has suffered from a drop in output amid faltering demand at home and abroad, as well as from disruption caused by new emissions tests. British consumers have become reluctant to make big purchases ahead of Brexit, while China, the biggest market for some UK manufacturers, has just recorded the first annual decline in car sales for almost 30 years.
Other European countries have suffered from the downturn in factory output, with Germany likely to be in recession in the second half of 2018.
UK economic growth slowed in the three months to November as a consequence, with the broadest drop in industrial production since 2012, while Britain’s trade in goods deficit – the gap between imports and exports – unexpectedly widened in November to reach £12bn.
Having fallen from a growth rate of 0.6% over the summer, economic growth in the UK dropped to 0.3% and is expected to slow further in the final months of 2018 and the first months of 2019.
Economists said politicians agreeing to a Brexit deal could help boost the outlook for 2019, and warned failure to do so would maintain the current tepid rate of UK growth.
Sentance said: “We need an end to Brexit uncertainty, which has been holding back the UK economy for the past three years.”