Leading economists have warned Brexit will be either ‘bad or awful’ for UK prospects in 2019 with damage likely to be inflicted even if Britain manages to avoid a disorderly Brexit.
The UK can expect no more than 1.5 per cent economic growth over the next year in the best case scenario, according to a Financial Times survey.
Nina Skero, head of macroeconomics at the Centre for Economics and Business Research, said that whatever its long-term effects, “in 2019, Brexit will be either bad or awful for the UK economy”.
A majority of respondents said that despite continued wage growth, lower inflation and a modest easing of austerity, consumers would feel no better off by the end of 2019, with anxiety setting in over Brexit’s potential impact on jobs, house prices and equity markets.
Even the handful of economists who believe Brexit will eventually benefit the economy were cautious about the short term outlook.
Braced for a hard landing
Gerard Lyons, chief economic strategist at Netwealth, said the economy “could easily come to a standstill in the early months” of 2019.
A lack of clarity means businesses will most likely prepare for the worst, meaning the UK should “brace itself for a hard landing,” according to Rebecca Harding, a trade economist who runs Coriolis Technologies.
Respondents reported evidence of a slide in business investment as firms wait to see what the outcome will be.
Rain Newton-Smith, chief economist at the CBI, told the FT that companies were putting contingency plans in place, and “more of these plans would turn into reality, with jobs and investment in the UK lost”.
Best case scenario
In the best case scenario of a relatively smooth Brexit, growth could pick up later in the year and going in to 2020.
However, Brexit “brinkmanship” will likely do lasting damage to the economy, with businesses being told to prepare for a no deal making “irreversible” decisions which will be felt in the long-term.
Even if a disorderly Brexit was averted, uncertainty over the UK’s future trading relations will limit the potential for a rebound, with the UK unlikely to return to pre-referendum levels of growth or to perform as well as its main trading partners.
Business and consumers cautious
Businesses have adopted a cautious approach to the economic environment that is unlikely to abate any time soon.
Mark Gregory, chief economist at EY, said: “Even if we sign a withdrawal agreement, I don’t believe this will unleash a spree of business investment. The UK is going to be approached generally on a ‘care and maintenance’ basis by multinationals.”
But worryingly, that seems to have impacted consumer confidence and consumers’ willingness to spend.
David Miles, professor at Imperial College, said a modest growth in real wages would not be noticeable to most households.
Brexit effects would mean “they will feel worse off, even if there is more money in the bank”.