If you leave an economic super-bloc, you pay the priceby George Magnus / April 4, 2019 / Leave a comment
The Conservative Party set out with strident Brexit intentions. Yet we have been left with a constitutional crisis, political chaos, corrosion of our security, self-belief and values, and growing risks to the economy. As I write, after initial May-Corbyn talks, no-deal seems less likely, but all of us are mere on-lookers in a remarkable political drama that evolves daily.
Even though a no-deal outcome might prove highly damaging, it was never and isn’t sustainable. Sooner or later, the government will have to talk to the EU about some form of economic relationship. Yet unless that engagement proves to be close and aligns the interests of the UK and the EU, the consequences of Brexit will take us a long time to get over. Indeed, in the economy and in business, the starting pistol has already gone off.
Since the June 2016 referendum, the economy has slowed down significantly. The UK is by no means unique, and others have suffered from slower growth in world trade, the US, China, and the euro area. Worryingly, average UK GDP growth of 1.7 per cent per annum since the 2016 vote slowed to 1.3 per cent in the year to the end of 2018. Consumer spending has grown by 1.7 per cent over the last year, with households racking up more debt. The real Brexit tell-tale though is business investment, which hasn’t grown at all since mid-2016, and was 2.6 per cent lower at the end of last year than it was a year before.
Brexit is reportedly leading to significant stockpiling, evident in recent upticks in purchasing manager reports, and probably also detectable in future GDP figures, but this will unwind soon enough.
Not everyone is worried. Many of the 5.7m small and medium sized firms in the UK, with a mainly domestic focus, see Brexit as an irrelevance or even an opportunity to supplant EU suppliers. The home market focus applies to construction and building firms, and those engaged in, say, the media, leisure, entertainment and hospitality sectors. For these firms, the issue will be more macro-economic, specifically what happens to demand and jobs, and to costs if sterling depreciates again. Global mining and natural resource companies, such as Glencore and Rio Tinto are also less Brexit-sensitive.
Equally though, a lot of firms…