UK Economic Outlook
Brexit Uncertainty Continues
The UK is scheduled to leave the EU on March 29, 2019 but recent political developments have raised many questions about how Brexit will unfold. With time running out, several options are still on the table, ranging from a no-deal Brexit to a second referendum. Dun & Bradstreet has assigned a ‘rapidly deteriorating’ rating for the UK’s political environment to reflect the continuing degree of uncertainty.
Elevated Levels of Political Risk
Forward-looking indicators for the UK economy have also deteriorated markedly in recent quarters. While this is a trend that can also be seen in most of the UK’s European peers, the downturn in the UK is especially worrying as it coincides with elevated levels of political risks. Eurostat’s Economic Sentiment Indicator dropped to 103.7 in January 2019, the lowest reading since July 2016 (the month after the Brexit referendum) and significantly below the EU-28 average of 106.1.
Business Failures Rise
Between October to December, Dun & Bradstreet recorded 4,993 business failures – demonstrating a significant rise in the number of failures in the UK, a marked change from the past five quarters. Average payment delays vary between sectors and have seen an improvement in Q4, but the UK continues to perform poorly compared to other European countries.
Employment is Rising
But it’s not all bad news, as the latest data from the Office for National Statistics shows that the number of employed people was 32.5m in November, the highest rate since 1971. At the same time, wage growth is sound, resulting in buoyant labour market conditions which could also help exporters to the UK. But with political developments dominating the headlines, any continued improvement will likely require a solution of the Brexit issue.
Predictions on Real UK GDP Growth
Taking all figures into account and assuming some form of managed Brexit, Dun & Bradstreet predicts real GDP growth to come in between 1.5% and 2.0% over the next five years, rather low by historical standards. However, given the political uncertainty, this figure would have to be revised downwards should the UK leave the EU without any deal in place.
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