Oscillating Growth Forecast Around Possible Brexit Outcomes

  • Jan 14, 2019 GMT
  • Team Kalkine
Oscillating Growth Forecast Around Possible Brexit Outcomes

In the past two years, the United Kingdom (UK) has caught all limelight with its decision to part ways with the European Union (EU). Experts from various industries and organisations have put forth their predictions around the possible resolution and consequences yet there is no unanimous stance on the future of the UK economy and its trading countries in Eurozone. Speculations around smooth Brexit are still higher as the consensus is that the parliament will avoid a recession in any case.

As per OECD’s report released around late 2018, the economic growth is expected to slightly go up in 2019 before slowing down in 2020, given there is a smooth exit by Britain from EU. This could be certainly accompanied by declining business investments amidst political and economic uncertainty. An expansionary fiscal stance and short-term tax cuts will probably boost the growth a bit. Simultaneously, the monetary impulse should be gradually withdrawn to support the transition whatsoever.

According to the consensus and more optimistic experts, a modest GDP growth rate of 1.5% for 2019 has been estimated in case of a compromise, and as low as 0.9% if there is a hard Brexit that is UK leaving without an agreement, and a slightly higher growth rate of 1.6% is predicted should the UK stay in the EU. A similar set of figures have been forecasted for 2020.

Yet, the ongoing scenario indicates that the country will be quite behind fellow competitive developed counterparts as the Brexit unfolds. An alternate optimistic belief is that at the backdrop of a global economic boost, the trading sector could benefit from a stronger pound sterling, despite a lower domestic spending. The net effect, however, needs to be seen. With a slow UK economic growth, all eyes have been on the Brexit agreement with regards to sustenance of the trading relationships.

Despite the majority view, all the sectors should brace against the worst possible outcome. The parliament would need to deploy essential measures to cushion the economy, support displaced system and mitigate other spill over effects.

The UK stock market has already begun to display signs of distress amidst the pre-Brexit uncertainty and investor confidence has been on a decline. On January 11, the UK government's announcement regarding a possible delay in the Brexit day, beyond March 29, triggered a hike in the pound sterling-dollar value, affecting the exports and dragging down UK share prices, which led to a weaker stock market. There is scepticism around risk taking investments and a growing prevalence of defensive strategies.

As of now, the services and the construction sectors are the stronger component of the UK economy, balancing out the declining manufacturing output. Although much is being speculated, the actual outlook for the year 2019 beyond March can only be developed as the referendum is signed and details released for a clear road ahead.

With Bank of England reducing the interest rates to a historic low level, the spotlight is back on diverse investment opportunities. 

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