Is the UK ‘Brexit economy’ losing strength?

The UK economy is losing strength.

“The lack of precision on the nature of the U.K.’s future relationship with the EU is lowering expectations for both business investment and export growth.” So says Adam Marshall, director general of the British Chamber of Commerce. (BCC).

What the BCC are saying.

The BBC has downgraded its growth prediction for this year and next year. They have joined a growing number of analysts and forecasters warning Brexit has sapped the economy’s strength. They cite a weaker outlook for trade and investment on uncertainty over exiting the European Union.

Economists at the BCC said, in a statement on Monday, they expect growth to fall to 1.1 percent this year, down from a previous forecast of 1.3 percent, and cut its 2019 outlook to 1.3 percent from 1.4 percent.

They continued; By 2020 the UK economy will have suffered its second weakest decade of average economic growth on record as business investment and export growth slow.

Most other mainstream forecasters agree with the figures. However, many also follow upbeat official figures that showed the economy expanded by 0.6% in just three months to the end of July, the fastest pace in almost a year. This was due to construction output rebounding and a heatwave boosting retail sales and the services sector.

 Deadline fast approaching.

The deadline for leaving the EU is fast approaching, March of next year. However, the UK’s relationship with the EU after that date remains unclear.

Although the Bank of England lifted its estimate of the economy after the May-July figures and before the BCC published its downgrade, it reiterated that Brexit is the biggest challenge to the outlook of Britain’s economy.  They went on that uncertainty over the UK’s future outside the EU had risen.

Business investment expected to remain weak.

The BCC expects business investment to remain weak and average earnings growth to only slightly outstrip inflation.

Adam Marshall said: –

“The drag effect on investment and trade would intensify in the event of a ‘messy’ and disorderly Brexit. Businesses need the Brexit negotiations to deliver clarity, precision and results at pace over the coming weeks.”

“Brexit uncertainty continues to weigh heavily on many firms, as most of the practical questions facing trading businesses remain unanswered.”

“At a time of massive change and uncertainty, business would not forgive a timid ‘business as usual’ autumn budget.”

 Pressure on the Chancellor.

Mr Marshall said the forecast will put pressure on the chancellor, Phillip Hammond, to put together a budget that supports struggling businesses.

The chancellor is also coming under pressure to reverse planned cuts in public services. This will mean finding an extra £20billion for the NHS after the promise that the government are to boost health spending by more than 3% a year.

Why businesses face uncertain future.

The BCC report also said: –

The high upfront costs of doing business in the U.K. and the uncertainty over the future relationship with the EU, will continue to stifle business investment and drag down growth in the second half of the year.

The jobs market is expected to continue to be a source of strength for the economy, with the unemployment rate predicted to remain close to its 40-year low.

But businesses will continue to face significant skills gaps This will undermine their potential to grow.  Workers are unlikely to experience meaningful real wage growth as the gap between pay and price growth is forecast to remain negligible.