UK Economy Is On A “Knife Edge” Because Of Brexit: Guardian

An analysis of the economic developments in the last one month conducted by The Guardian shows that the economy of the United Kingdom remains on a knife-edge at the start of a new year because of the increasing uncertainty surrounding Brexit even as the deadline to strike a deal with the European Union draws near.

Even as the threat of leaving the EU without any favourable deal is becoming more imminent, UK households are exhibiting signals of strains even in the Christmas festive season.

But even as business leaders exhibit stronger than ever concerns over the Brexit uncertainty, there are pockets of economic strength according to the latest monthly tracker of economic news of The Guardian. This was a tracker that was started by the newspaper following the Brexit vote two and a half years ago.

Either savings are being exhausted or borrowings are being made, which are more than their income, by households for spending during the third Christmas since the Brexit referendum which is propping up the British economy. But at the same time, it is also forming the platform for a possible debt crisis and a slowdown in consumer spending for the future.

Eight economic indicators have been chosen by the Guardian to enable insight about the impact of the Brexit referendum outcome on a monthly basis. Additionally, the data also included the value of the pound and the performance of the FTSE 100.

According to the latest monthly data, even as chaos reigned in Westminster and as Prime Minister Theresa May postponed the parliamentary vote on her Brexit plan until the new year, business activity came close to flatlining.

The rising uncertainty also saw very flat growth in the critical services sector in the UK which includes banks, shops and restaurants and accounts for almost four-fifths of the British economy. The weakening prospects of economic growth in the short term, the value of the pound has dropped to its lowest value against the dollar in the last two years.

The lowering of the global crude prices has created a bright spot in the economy with the inflation dropping. And in addition to the lowest level of jobless rate since the mid-1970s, the highest level since the last decade has been reached by the average wage growth. These two factors can help households to gain more spending strength.

But several years of tough economic conditions have also kept household spending under pressure. While the level of average pay is lower than the peaks that had been attained before the financial crisis, the rate of inflation is still high even though dropping.

“Even though short-term inflation developments may be favourable for consumers, the longer-term picture is not so positive”, said Andrew Sentance, a former member of the interest rate-setting monetary policy committee (MPC) at the Bank of England, weiting in the Guardian.

While warning that the there would be deterioration in retail sale, David Blanchflower, another former MPC member wrote in the Guardian: “The fear of crashing out without a deal next year is reducing demand for bigger purchases. The future is too uncertain to keep on spending. The Brexit vote has hit consumers in their pockets and harmed the economy.”

(Adapted from TheGuardian.com)

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Categories: Economy & Finance, Geopolitics, Regulations & Legal, Strategy, Sustainability, Uncategorized

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