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Economy can weather Brexit storm

Following reports of increasing business confidence in London, the latest ICAEW Economic Forecast says the UK economy should be able to weather continued Brexit uncertainty without too much damage so long as “no deal” is avoided.


August 2019

Brexit uncertainty although weighing on both business and consumer sentiment, may not damage the UK economy as much as expected according to ICAEW. The news comes after the ICAEW Business Confidence Monitor reported recovering confidence in the capital.

In its latest economic forecast, ICAEW believes that the economy should be able to bear the burden of continued uncertainty and highlights the role consumers, businesses and policy makers have had in insulating the economy from political uncertainty in the past.

The UK economy continues to enjoy some positives with pay growth continuing to outstrip inflation, unemployment forecast to remain very low and fiscal austerity being relaxed. Overall, the 2019 growth forecast is expected to increase from 1.3% to 1.5%.

Michael Izza, ICAEW Chief Executive, said: “Household and company spending and saving decisions are influenced by expectations of the future economic situation. But as long as a ‘no-deal’ Brexit is avoided, history suggests that the current ‘new normal’ of elevated uncertainty may not impact as much as some expect.

“Of course, cuts in investment by some businesses in response to uncertainty are unlikely to be reversed, even once the UK’s departure from the EU has been resolved. But if policymakers remain on the ball, the overall macroeconomic effect of the Brexit limbo businesses currently find themselves in should be manageable.”

Highlights of the ICAEW economic forecast include:

  • Faster growth in Q1 supported by ‘no-deal’ preparations. A 0.5% rise in GDP in Q1 was an improvement on the previous quarter’s sluggish 0.2% gain. However, a surge in manufacturing output suggests that the economy enjoyed temporary support from businesses stockpiling at the end of March.
  • Business investment breaks a long-running fall. Having dropped in each quarter of 2018 (outside recessions, the longest continual decline since records began), business investment saw a surprise 0.5% rise in Q1 2019. However, the same ‘no-deal’ worries that encouraged stockpiling may also have played a role in temporarily raising business investment in the form of warehousing and logistics.
  • Unemployment to remain low while pay growth stabilises. An unemployment rate of 3.8% in the first quarter of 2019 represented a near-45 year low, while the employment rate touched a joint-record high in the same period. The flexibility of the UK jobs market should support further jobs growth, but at a slower pace than recent years.    
  • Uncertainty continues to hit investment. It is very clear that heightened Brexit-related uncertainty is weighing on business sentiment. However, outside business investment, the real economic impact of periods of elevated political uncertainty is hard to identify.

More details can be found at ICAEW Economic Forecast

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