Had sterling not depreciated and the economy continued to grow at its previous rate, real household disposable income might have been 2 per cent higher than nowby Garry Young / November 8, 2017 / Leave a comment
Much has been made in the media of new estimates, published in the National Institute Economic Review, suggesting that leaving the European Union without a deal and moving to World Trade Organisation rules—the so called “hard Brexit” scenario—would add £930 to annual household bills in the future, due to tariffs being imposed on EU imports.
The NIESR’s new UK forecast, published in the same review, shows that before any kind of Brexit—soft or hard—has occurred the uncertain process of preparing for leaving is having an adverse effect on our economy. And the impact is being felt by ordinary households to the tune of £600 a year.
Having been one of the fastest growing advanced economies ahead of the referendum last year, the UK economy is now beginning to slow as others pick up the pace. It is estimated to have grown by 1.5 per cent in the year to the third quarter of 2017. This represents a loss of momentum from annual rates of GDP growth of 2 to 3 per cent achieved in the years leading up to the referendum.
It is almost certain that the slowdown has been caused by the uncertainty surrounding Brexit. For businesses that export a significant proportion of their output to the EU, the rate of return on investment is likely to hinge on what type of access will be available beyond 29th March 2019. Delaying investment decisions until more is known about the UK’s future relationship with the EU is therefore the most appropriate response. As such, the lack of clarity about future trading arrangements is likely to be having an adverse effect on current levels of capital investment and other productivity–enhancing activities.
Some evidence on the extent to which Brexit is an important source of uncertainty for British business is available from a Bank of England panel of senior executives. Panel members from a diverse range of non-financial businesses have been surveyed on a monthly basis since the referendum and provided their assessment of current business conditions. In August 2017, 39 per cent of respondents reported that Brexit was one of the top sources of uncertainty facing their business. Only 13 per cent of respondents said that Brexit was not an important source of uncertainty to their business, down from 23 per cent in August 2016.
The recently published EEF/Santander Annual Investment Monitor covering the manufacturing…