0246 GMT July 23, 2019
Two former members of Bank of England’s rate-setting committee opined on the UK economic outlook in case of a no-deal Brexit, saying it could be very damaging.
Looking back on the final quarter of 2018, economic activity in the UK was clearly softening. Retail sales fell back and many other economic indicators suggested that the surge in economic activity over the summer had subsided.
The strength of the world economy has been a support to the UK in the past two to three years but there are signs that we are now losing this support. Growth figures in our key European markets have been disappointing and there are also worries about growth in China and the US, theguardian.com wrote.
I am not too worried that this slowdown in global growth will turn into a major recession in 2019 or 2020. But it is not a good backdrop for Brexit.
The first half of 2019 looks to be a very difficult period for the UK economy, where there may be little economic growth and unemployment could well start to rise. The political paralysis surrounding Brexit is very damaging in terms of business sentiment.
The latest CBI Industrial Trends Survey shows very negative responses on general business confidence and export prospects.
The prospect of a no-deal Brexit is very damaging for the UK economy. A no-deal would signal that our government had lost control of events and was complicit in a chaotic outcome to the Brexit process.
Unless the UK government manages to restore control of the Brexit process and political events more generally, the first half of 2019 is likely to be a very uncertain and unstable period for the UK economy.
We need an end to Brexit uncertainty, which has been holding back the UK economy for the past three years. Unfortunately, I can’t see this happening until we establish a much clearer national, cross-party consensus on the way that Brexit should proceed.
The most interesting news this month was from the labor market. Unemployment dropped to four percent, which is the lowest rate for two months.
But of particular note was the fact that the number of employees fell by 12,000 on the month while the number of the self-employed rose by an unlikely 81,000. This is the third biggest monthly rise since 1992 and sets Britain apart right now.
Self-employment is now up by about a million since 2008, although the numbers have started to fall over the course of the last year. In contrast, most other advanced countries, including the US and Germany, have seen declining rates.
The concern is that these new self-employed jobs are low-paying and possibly short-lived. We know from government figures that the median earnings of the self-employed are around half that of employees.
Moreover, their earnings are not included in the nationally reported wage data. Between 2007-8 and 2013-14, we know from the government data that real annual earnings of employees fell 11 percent compared with a fall of 26 percent for the self-employed.
In general, rising self-employment rates are associated with bad outcomes. Developing countries reduce their self-employment rates as they get richer.
It is possible that the self-employment rise in Britain might be Brexit-related: If companies are uncertain about the future and reluctant to hire full-time, or to invest more generally, then the obvious course of action is to temporarily farm out the work. This kind of rise might not be sustainable in the long run.
Average weekly earnings, including bonuses, on a monthly basis dropped from £528 to £527, so the main reading for an annual rise of 3.2 percent was driven mainly by base effects — statistical anomalies in the data from a year ago.
UK inflation declined to the lowest level in almost two years in December after a drop in petrol prices. This has helped to boost real wages but they still remain five percent lower than they were at the start of recession a decade ago.
Accompanying a fall in consumer confidence, consumers slowed their spending in December over the key Christmas shopping period. Of particular note is the decline in car sales — especially diesel vehicles — in 2018, with the total number of sales the lowest for five years.
This may well be Brexit-related. The Society of Motor Manufacturers and Traders forecast further declining sales in 2019, even without a hard Brexit — and warned that for the UK to leave the EU without a deal in March would be a catastrophe and an ‘existential threat’ for the industry. Not good.
Brexit uncertainty makes it hard to see much improvement in the economic data anytime soon, although ditching a no-deal Brexit would likely be an upside surprise to the financial markets. We shall see.
*Andrew Sentence is an independent business economist and member of the Bank of England’s monetary policy committee (MPC) from 2006 to 2011.
*David Blanchflower is a professor of economics at Dartmouth College in the US and a member of the MPC from 2006 to 2009.