The question is whether it will ever return to its previous levels of growthby Vicky Pryce / September 10, 2019 / Leave a comment
The economic debate over Brexit has rumbled on ever since the referendum. For some, employment levels have never been higher—so why worry? For any impartial onlooker though damage has already been done. Indeed the most worrying facet of the experience since 2016 has been the lacklustre investment performance by the business sector, which if not reversed will consign the UK to years of low growth and poor competitiveness in a world already struggling with trade disputes and fears of oncoming global recession.
We all remember the criticism of “project fear” during the referendum. The Remain campaign’s argument was that Brexit was bad for the UK economy—and a no-deal Brexit, or the “WTO option” as it was referred to by then, the worst of all. While this was dismissed by Leavers who eventually won the vote, the predictions had at their heart the negative impact on domestic and foreign investment—and hence the overall economy—that a Leave vote might engender.
Sadly this is evident already, despite the fact that we have not left yet. The Centre for European Reform, the Bank of England and others have estimated that by late 2018 the economy had already suffered lost growth of over 2 per cent compared to how it would have performed. Given the further slowdown in the economy since, the figure now is likely to be nearer 3 per cent. In other words we would have been some 3 per cent richer as a nation, more innovative and more competitive.
Why? Because the main hit has indeed been to investment, which is essential for innovation and growth. Although we have record low unemployment, this is largely because firms have done the cautious, prudent thing. In the middle of the huge economic and political uncertainty that the planned departure from the EU has created, they have adopted the strategy of meeting whatever demand there is by hiring more workers, who are relatively cheap (and can be fired if need be), instead of investing as they otherwise would have done in plants, machinery, operations and systems.
Private sector capital spending fell by 0.2 per cent in 2016 and although it recovered by 1.5 per cent in 2017, as world trade growth picked…