Between the intervening time period from the third quarter of 2016, the time soon after the Brexit referendum, and the first quarter of 2018, there has been a loss of £35 billion ($46 billion) in output in the UK economy according to economists at Berenberg bank.
“During the past two years, much of the advanced world has showed tentative signs of escaping the post-Lehman age of caution and growth has improved,” said Kallum Pickering, a senior economist at Berenberg. “Because of Brexit, UK growth has softened instead.”
Higher rates of inflation and a reduction in consumer spending which drives the British economy was the result of a fall in the pound following the Brexit vote. The squeeze is being felt by UK retailers in a big way. Other sectors are being hurt too.
In the first quarter of the current year, there was just an increase of 0.1 per cent in GDP because of a decline in construction and manufacturing. According to the estimates of the National Institute of Economic and Social Research, the second quarter growth is to be only marginally higher at 0.2%.
“Business investment has slowed and it does feel like a big chunk of this is related to the uncertainty and expectations of a smaller economy going forward,” said Yael Selfin, chief UK economist at KPMG.
On the other hand, despite uncertainty over Brexit, unemployment is at its lowest level in decades. But a closer examination reveals that wages only recently started growing again after falling for a year after inflation is taken into account.
“Because of the uncertainty, employers are reluctant to commit themselves to higher wages because they are not sure what the future is likely to be,” Selfin said.
The pace of job creation in the economy has been slowed down substantially. In the first year after the referendum, 451,000 jobs were added according to data from the Office for National Statistics. However, the data also showed that just 112,000 were created in the next nine months.
In the meantime, there is apparently some panic among businesses about the Brexit related uncertainty. There is a fear with Airbus that there might not be any deal when Britain leaves the European Union in March 2019 which could end its access to the single market. The complex supply chain of the company needs to be adequately adjusted as does many other British companies. It urgently needed clarity, the company said on Friday.
“We’ve got to be able to protect our employees, our customers and our shareholders,” Tom Williams, the chief operating officer of Airbus Commercial Aircraft, told BBC radio. “And we can’t do that in the current situation.”
“There is a risk that the auto industry in the United Kingdom faces extinction if there’s no customs union after Brexit,” Paul Drechsler, president of the Confederation of British Industry, warned last week.
Brexit has already hit London’s real estate market.
Home prices in the global financial center are now falling after years of blockbuster growth. It is expected to drop further next year according to the Royal Institution of Chartered Surveyors.
(Adapted from Money.CNN.com)