UK on brink of recession as No Deal Brexit looms again

10 July 2019 Consultancy.uk

The UK economy appears to be teetering on the brink of recession, as the Brexit Secretary declined to rule out No Deal Brexit resulting in a depression. The news comes as a respected economic survey predicted that the UK saw an economic contraction in the second quarter of 2019.

The on-going saga of Brexit has left Britain’s economy in a state of disarray in the last year. In Summer 2018, the British Chambers of Commerce warned that UK growth could hit its lowest levels since 2009, as the organisation downgraded its growth forecast by 0.1%. While the fall from 1.4% to 1.3% might seem trivial to some, it would place the UK’s economy at its lowest point in nine years – a time when it had just been rocked by the recession of 2008.

With no conclusive end to the UK’s exit from the remaining bloc of 27 in sight, the UK’s economic prospects do not seem to have improved. The Scottish Chambers of Commerce recently found firms were struggling to grow, amid political deadlock over Brexit. The organisation found Scottish firms were putting off investment because of uncertainty over the UK's future relationship with Europe. Elsewhere, this uncertainty saw softening orders subject UK manufacturers to negative growth for the end of 2018, reflecting a wider slowdown in the UK economy to 0.2% for the quarter, followed by three months at the start of 2019.

UK on brink of recession as No Deal Brexit looms again

Exacerbating this, with outgoing Prime Minister Theresa May’s proposed deal with the EU scuppered by historic defeats in Parliament, the process has stalled for the foreseeable future, or at least until the Conservative Party has selected its new leader. While the Tories will undoubtedly hope the conclusion of that battle galvanises the national economy while delivering a decisive end to the Brexit process, however, it seems easier said than done for the Government to have its cake and eat it, come Halloween.

Despite various pieces of research suggesting No Deal would be catastrophic for the growth prospects of the UK, both the remaining candidates have refused to rule out a No Deal. Front runner Boris Johnson recently called the threat of No Deal a "vital" negotiation tool if the UK is to “do better" than the current deal agreed by May and the EU. Rival Jeremy Hunt, meanwhile, astonished viewers of the Andrew Marr Show when he said he would willingly tell businesses which go bust because of a No Deal Brexit that their sacrifice was a necessary one, albeit “with a heavy heart.”

While a No Deal exit might well impact the economies most closely linked to it on the continent, it is likely to have a far greater and more immediate impact on Britain. According to Oliver Wyman, a No Deal scenario could reportedly see households stung to the tune of £1,000 because of the new regulations incurred by a Hard Brexit alone.

Incumbent Brexit Secretary Steve Barclay, who is responsible for No Deal preparations, has stated that he could not rule out a recession, price rises in the supermarkets, or traffic jams on the roads. In an interview with Sky News, Barclay stated that “as a former Treasury Minister no one can ever rule out what could happen in the future."

Barclay’s intervention comes at the same time a new economic survey has predicted the UK economy contracted in the second quarter of the year, raising further fears of a potential recession ahead. A recession is when the economy declines significantly for at least six months (commonly it is said to be when the GDP growth rate is negative for two consecutive quarters or more), leading to a drop in real GDP, income, employment, manufacturing, and retail sales.

According to an all-sector calculation, following the final IHS Markit/CIPS purchasing managers' index reading for June, the economy recorded negative growth of 0.1% between April and June. Should that performance be confirmed by official statistics and the negative growth replicated in the current third quarter, the UK would already be in a technical recession ahead of its next Brexit deadline of October 31st. At that point, crashing out of the EU without any trade agreement could threaten to rock Britain’s economy in a way not seen since a decade ago.


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