Brexit is paralyzed and so is UK economy
The inability of UK politicians to agree how to leave the European Union has plunged Brexit into chaos and helped paralyze the British economy.
A weak housing market, slumping autos production, declining investment and downbeat executives all suggest that nearly three years of uncertainty over Brexit is causing the economy to stagnate.
The latest warning sign came Tuesday when the British Chambers of Commerce said a survey of 7,000 businesses indicates that economic growth “nearly ground to a halt” in the first quarter.
“Our findings should serve as a clear warning that the ongoing impasse at Westminster is contributing to a sharp slowdown in the real economy,” said Adam Marshall, the business lobby group’s director general.
Uncertainty = economic trauma
The UK economy expanded by just 0.2% in the three months ending in January. Yet economists fear the pace of growth has weakened since then.
One key piece of evidence is trouble in the services sector, which makes up around 80% of GDP.
Surveys from IHS Markit show that services employment fell at the quickest pace since 2012 in February as companies postponed hiring decisions because of uncertainty over Brexit.
Chris Williamson, chief business economist at IHS Markit, said the data indicate the UK economy “remained close to stagnation” in February and that growth could slow to 0.1% in the first quarter.
Construction output also dropped in March, according to data released by IHS Markit. Manufacturing ticked higher during the month, but only because businesses are stockpiling to prepare for Brexit.
The property market
The UK property market was hit hard following the Brexit vote in June 2016, and its continued weakness underscores the ongoing costs of uncertainty.
London home prices fell 3.8% in the first quarter compared to the same period last year, according to mortgage lender Nationwide. That was the steepest drop in London house prices since 2009.
“Heightened Brexit and economic uncertainties are fueling buyer caution,” said Howard Archer, chief economic adviser to the EY ITEM Club.
The Royal Institution of Chartered Surveyors said that a survey of industry professionals showed that new buyer inquiries and sales dropped for a sixth consecutive month in February.
It said that 77% of survey respondents confirmed that confusion over Brexit was depressing the market.
Investment dries up
Economists are also sounding the alarm over reduced investment.
Business investment in the United Kingdom fell 0.9% in the final three months of 2018, marking the first time investment has declined in four consecutive quarters since the global financial crisis.
New investments in the auto industry dropped by half in 2018, according to The Society of Motor Manufacturers and Traders.
The industry, which has been hit by diesel scandals and new emissions tests, has suffered from a sharp slowdown in sales. Car production dropped for a ninth consecutive month in February.
The big picture
The Bank of England estimates that the British economy is already 2% smaller than it would have been if voters chose to remain in the European Union.
That translates to a loss to the UK economy of £800 million ($1 billion) a week. Meanwhile, little is being done to address other economic problems including lackluster productivity and rising inequality.