Brexit uncertainty set to hobble UK economy
Britain’s retail sales drop as food stays on shelves
LONDON, Oct 18, (Agencies): The uncertainty over Brexit that’s hobbling the British economy is set to go on for longer than expected, leaving companies and households in a limbo.
When Britain triggered the twoyear timetable to leave the European Union, October’s summit of EU leaders was supposed to be the moment a Brexit deal would be agreed on to give parliaments the time to pass it into law ahead of March’s departure.
A deal at Wednesday’s summit would have lifted some of the pall that’s hung over the British economy since the Brexit vote of June 2016. Instead, British Prime Minister Theresa May wasn’t able to secure an agreement and EU leaders cancelled a Brexit summit in November. That suggests there won’t be any deal until December - at the earliest. Even if May does secure one, there is no certainty she can get it approved by her own, divided parliament.
The worry is Britain could crash out without a pact on future relations with the EU or without even a transition period to ease its exit - what has become known as a “hard Brexit.” Tariffs would be placed on exports, border checks would be reinstalled, and restrictions could hit travelers and workers. Some are warning of shortages in markets like medicines and even sperm donations.
“For the economy, this could see growth momentum slow again over the winter as uncertainty rises,” said James Smith, developed markets economist at ING. “With businesses becoming more vocal about the impact ‘no deal’ would have on operations, households may begin to take a more cautious stance if they gradually become more wary about their job security.”
Consumers have become cautious, cutting down on spending as a fall in the pound after the Brexit vote pushed up prices for imports. The housing market has cooled, particularly in parts of London. And companies have become more hesitant to invest. From being the fastest-growing Group of Seven industrial economy prior to the Brexit vote, Britain is now one of the slowest.
According to the International Monetary Fund, UK growth this year is expected to be a muted 1.4 percent. After Wednesday’s summit, the risk is it could be even lower if firms become more cautious.
“Business’ patience was already threadbare and is nearing an end,” said Carolyn Fairbairn, director-general of the Confederation of British Industry, a lobby group that represents mainly big firms.
British businesses are particularly open to foreign markets, investing heavily abroad, hiring foreigners and exporting to other markets, particularly the EU, the biggest destination for British goods.
Research published Thursday by the British Chambers of Commerce and DHL Express UK showed the extent to which Brexit is making life difficult for firms.
In a survey of 2,530 small and medium-sized companies conducted in August, the BCC found that 49 percent of firms have Brexit “front of mind” when deciding whether to trade internationally and that highlights “the economic cost of the persistent lack of political clarity.” A similar number are also concerned about the pound’s volatility - the currency fell sharply after the Brexit vote and it has continued to swing sharply.
“Firms have been dealing with uncertainty over the future relationship with the EU since the referendum vote over two years ago,” said BCC director-general Adam Marshall. “This survey shows that, as we get closer to the crunch, the lack of precision is starting to have a material impact on their decision-making.”
Meanwhile, British retail sales fell in September as food purchases dropped at the fastest pace in almost three years, official data showed Thursday.
The total quantity of goods bought last month “declined by 0.8 percent when compared with August... due mainly to a large fall of 1.5 percent in food stores”, the Office for National Statistics said in a statement.