Dun & Bradstreet’s Executive Economists Demystify Brexit
The Clock is Ticking on Brexit, and Progress is Limited
Although Article 50 was invoked on 29 March, Brexit talks didn’t actually start until June due to snap elections in the UK. Since then, the British and the EU delegations have met three times, but no breakthroughs have been made on the issues of the Irish-Northern Irish border, the UK’s financial obligations, and citizens’ rights. The EU has made progress on these issues a condition for opening talks about future trade relations, and so it now seems unlikely that negotiations can start in October, thereby creating additional time pressures.
Economic Growth is Slowing
Against the backdrop of rising political risk, stemming from the lack of clarity as to what kind of Brexit politicians are favouring, the economy is showing signs of a slowdown. The UK’s real GDP growth for Q2 came in at 0.3% quarter-on-quarter, half that of the euro-zone growth rate. Despite a weaker pound, export performance remains sluggish, and with inflation still outstripping wage growth, consumer spending is being squeezed. We expect real GDP growth to slow in 2017, and to become even more sluggish in 2018.
The British Government Faces Difficult Economic Choices
While there now seems to be a consensus on the British side that Brexit talks cannot be completed successfully before March 2019, and that the UK must not leave the EU without a deal, it is still unclear what kind of transition agreement will come into force in 2019. There is a clear trade-off between economically desirable and politically possible outcomes. We remain confident that the supporters of maintaining a single-market membership during the transition phase will eventually win the fight in the cabinet and parliament, but such an outcome is far from being certain. More clarity about the issue can be expected after the Conservative Party conference in early October.
For more expert analysis on the implications of Brexit, download ‘The 2017 Global Outlook Post-Brexit.’