"Brexit" seriously damages the medium and long-term growth prospects of the UK e

Posted by qianjiu on May 6th, 2019

Britain's "Brexit" has been steadily changing, but some economic data this year show that the UK's economic growth is better than expected. Economists generally believe that this is a short-term anomaly caused by enterprises in response to "Brexit", and the medium- and long-term prospects of the UK economy are not good.

According to the latest statistics released by the National Bureau of Statistics of the United Kingdom, in the three months ending February of this year (December 20-19-2019), the UK's gross domestic product (GDP) increased by 0.3% from the previous month, better than market expectations. Earlier, many economists predicted that the UK economy may fall into recession in the first quarter of this year.

Howard Archer, chief economic adviser of the well-known economic forecasting agency Ernst & Young Statistics, believes that the important reason for the better-than-expected UK GDP data is that “Brexit” has led to abnormal growth in manufacturing. Manufacturing output, which accounts for about 10% of UK GDP, rose by 0.9% in February this year; the UK Manufacturing Purchasing Managers Index (PMI) reached 55.1 in March, much higher than market expectations.

Archer said that the abnormal trend of the British manufacturing industry is in contrast with Europe and most other parts of the world, because the "Brexit" uncertainty is driving companies to hedge the supply chain disruption risk. Due to fears of “no agreement to leave the EU”, there has been a significant increase in inventories in the UK manufacturing industry.

In addition, the UK job market is also quite tight. In the three months to January of this year, the UK unemployment rate was 3.9%, which was below 4% for the first time since 1975. Analysts said that the current low unemployment rate in the UK is also an anomaly caused by companies to deal with "Brexit."

Due to the uncertain future of “Brexit”, British companies are reluctant to make long-term investments and instead make orders by temporarily adding employees. At the same time, “Brexit” has led to a decline in the number of workers from other EU countries, which has also boosted the employment rate of British citizens.

The strength of the UK economy's individual indicators does not obscure the weakening of the UK economy. In sharp contrast to the manufacturing sector, the service sector, which accounts for nearly 80% of UK GDP, continues to be in the doldrums. According to the latest data from IHS Marquette, the PMI of the UK service industry fell to 48.9 in March due to the uncertainty of “Brexit”, which was the first time since July 2016 that it fell below the 50.0 line.

Chris Williamson, chief business economist at IHS Marquist, said the decline in service activity in March indicated that the UK economy is at a significant downside risk in the coming months.

The decline in investment caused by the uncertainty of “Brexit” is even more serious. The recent report of the British Chamber of Commerce predicts that even if the UK achieves “orderly Brexit”, British companies will reduce their business investment by 1% in 2019, the largest decline in 10 years.

Adam Marshall, Director General of the British Chamber of Commerce, said: "Worse, some companies have moved out their investment and growth plans (UK) as part of emergency preparedness. Some investments may never return to the UK."

In view of the uncertainty of “Brexit” and the slowdown in world economic growth, most institutions have lowered their forecasts for UK economic growth in 2019. The World Economic Outlook report released this month by the International Monetary Fund (IMF) lowered its forecast for UK economic growth this year to 1.2%, the lowest level since the financial crisis.

Earlier, the Bank of England has lowered its forecast for UK economic growth this year to 1.2%. Bank of England Governor Mark Carney warned that "the fog of Brexit" has caused short-term fluctuations in economic data and caused economic and commercial tensions.

Although the term of the Brexit period has been extended to October 31 this year, the stalemate in the "Brexit" agreement has not yet been broken, and the risk of "no agreement to leave the EU" remains high. The IMF warned that “no agreement to leave the EU” is one of the major downside risks to the global economy, which will seriously disrupt the supply chain and increase trade costs, which may have serious and lasting negative impacts on the UK and EU economies.