Britain averts recession, but gloom persists

Few events outside of war can have quite as much potential impact on the economy of a country as Britain’s decision a year ago to leave the European Union.

The momentous vote on June 23, 2016 has the potential to sever Britain’s ties to its main trading partner, a grouping it has spent more than four decades building ever-closer ties to.

From subsidies for farmers to standards on consumer products and banishing all types of impediments to trade, the British economy is deeply enmeshed in the workings of the EU.

Since the vote, the British economy defied the gloomy recession predictions of many, including the British Treasury and the International Monetary Fund. Other forecasts like an immediate house price crash didn’t materialize either.

But other predicted events did occur, such as a sharp fall in the pound and rising inflation. And now that the official twoyear Brexit process has begun, there are renewed signs of economic pain.

So where is the British economy, one year later? Here’s a brief guide.

Still growing, just

The British economy did not contract in the wake of the Brexit vote as many had warned. In fact, for much of the time since, it’s grown faster than many of its peers in Europe, largely because of a sharp fall in the value of the pound. The 15 percent decline made exports cheaper, a boon to growth. However, the economy is now weakening amid the Brexit uncertainty and the pound’s drop makes imports more expensive. The British economy is even trailing the likes of Greece, as Britain grew by a quarterly rate of 0.2 percent in the first three months of the year, lower than any economy in the Group of Seven industrialized nations.

At the same time, previously struggling continental economies like France have gained momentum, potentially affecting the dynamics of the Brexit talks, which started this week.

Recession ahead

The worry is that the pre-Brexit doom-mongers may be proved right should Britain crash out of the EU without a comprehensive trade deal in the so- called “hard” Brexit scenar- io. Ratings agency Standard & Poor’s says Britain has the most to lose economically as it exports more to the EU, when calculated as a proportion of the economy, than any other country.

The risk, it says, is magnified by the fact that the services sector, such as banking, accounts for a significant chunk of those ex- ports. And services are less likely to be covered in any immediate trade deal to retain privileged access to the massive EU market.

London at risk

Given its central role in the European financial sector, London’s fate is uncertain. When Britain leaves the EU,

Britain’s FTSE 100 has actually hit a series of alltime highs...partly due to the export-boosting impact of the pound’s drop. The Associated Press

British financial services companies would lose the automatic right to operate in all the other 27 EU states, a big handicap. The city’s global status, including its deep pool of skilled professionals like lawyers and accountants, will help cushion the blow, as will something as basic as the English language.