News ID: 255776
Published: 1245 GMT July 14, 2019

Little hope for a summer bounce as no-deal fears drag down UK GDP growth

Little hope for a summer bounce as no-deal fears drag down UK GDP growth
FLIPBOARD

One swallow doesn’t make a summer, so the old saying goes. For the warm middle months of the year, the British economy looked remarkably frosty, chilled by fears over a no-deal Brexit, until the Office for National Statistics (ONS) reported a surprisingly strong month for growth in May.

The figures, released last week, were a glimmer of hope that Britain might yet shrug off the worst of the Brexit cold, which has laid the economy low over recent months as companies put their investment plans on ice, theguardian.com reported.

With the political chaos at Westminster — and as a carnival of promises are made by Boris Johnson and Jeremy Hunt in the Tory leadership race, many of which would surely never fly — businesses cannot be blamed for taking pause.

But underneath the warm glow of the most recent GDP figures, which showed the economy expanded at a reasonable 0.3 percent in May from the previous month, there are reasons to be fearful of a damp summer for growth.

Paralyzed by uncertainty, Britain could still tilt into recession even before the proper damage has been done from leaving the EU at the end of October.

The improvement on the month was driven by carmakers reviving production after stoppages in April, which had been planned to avoid any disruption in a no-deal scenario around the original Brexit deadline on March 29.

However, the ONS warned that car production had returned only to the subdued levels seen at the start of the year. The economy was hardly racing ahead, it suggested, as Brexit uncertainty held down growth.

The monthly growth figures could prove a false indicator, masking a wider slowdown in the three months to June. The National Institute of Economic and Social Research, one of the leading economic forecasters, still expects GDP to slide by 0.1 percent in the second quarter, putting the UK on the brink of recession. It bets on a return to growth in the third quarter, avoiding such a fate, but the risk is there.

The latest readings for activity from the IHS Markit and the Chartered Institute of Procurement and Supply, which are closely watched by the Treasury for early warning signs, indicate a near standstill in June. And according to retailers, annual consumer spending growth in June was the weakest since 1995.

The world economy has also faltered in recent months, as the US-China trade war rattles international trade. The openness of the UK economy means it is especially vulnerable, at a time of maximum weakness due to Brexit. The odds of a recession are rising. And the consequences would be far-reaching.

One scenario would see the economy crash further into the red, exacerbating the damage done in recent months. Tailbacks at ports could cause disruption across the country for manufacturers, serving as a brake on growth.

Employment has so far held up reasonably well, with record numbers of people in work. But this could change rapidly in a no-deal Brexit.

Another scenario would have political consequences. Should the UK slide into recession in the middle of the year, the incoming prime minister could blame prevarication for the damage.

Delaying Brexit has caused the damage, they might say; Brexit, ‘do or die’, in the autumn is the only answer. Down such a road madness lies: Ending the uncertainty with the thing businesses fear most would be the worst possible solution.

It is highly unlikely no-deal would have little impact on growth.

Mark Carney, the Bank of England governor, warned on Thursday it would deliver a ‘major economic shock’. But what if the impact wasn’t as bad as feared?

Johnson or Hunt could turn on the Treasury spending taps, boosting growth, and claim to have rescued the economy from a recession, while also leaving the EU. A ‘Brexit bounce’ could make a snap election tempting soon thereafter.

The British economy this summer stands in sharp contrast to 2018, when the men’s football World Cup and hot weather brought consumers out in their droves to fuel a mini economic boom. Despite positive growth in May, this year is very different. A summer slump awaits.

 

 

 

   
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Resource: theguardian.com
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