Over the last two years, the UK economy has been slowing down. One of the main reasons for the slowdown is the uncertainty surrounding Brexit and the future relationship with the European Union (EU). Businesses are naturally delaying investment decisions until they know which way the UK economy is going. This is highlighted in Chancellor Phillip Hammond’s Spring Statement, which stated that a resolution to the current uncertainty would deliver a ‘Brexit dividend’ in released capital investment.
Despite both Theresa May’s Withdrawal Agreement with the EU and the no deal option being rejected unanimously by Parliament, both options remain on the table. The only other options are an extension of Article 50 or, if MPs are brave enough, revocation of Article 50. The problem is that Parliament, like the country, is divided. It is amazing that with only 2 weeks remaining before the UK is scheduled to leave the EU, we are still no clearer as to our future relationship. Putting it simply it is a ‘dogs breakfast’. The danger is that there will be no agreement or plan on the way forward and the uncertainty will continue. This will be a natural drag on the economy and markets.
The Office of Budget Responsibility (OBR) has cut its forecast for UK growth in 2019 to 1.2%, from 1.3% at the time of the 2018 Autumn Budget. The OBR are also forecasting UK growth at 1.4% in 2020 and 1.6% in 2021. Given the uncertainty surrounding the UK economy, these forecasts are unreliable.
If there is certainty, regarding the outcome of Brexit there is likely to be a boost to the UK economy and an improvement in the public finances. The next few weeks are critical for the UK economy and markets.