Seismic effects of Brexit ‘poorly timed’ as UK GDP suffers

Economy contracted as Theresa May delayed her Brexit vote

May sidesteps 'lunatic fringe' in Brexit speech

The timing of Brexit has been described as “poor” by one multi-manager as disruption from the UK exit from the European Union, scheduled for 29 March 2019, coincides with a slowdown in activity from its global trading partners – highlighted in UK GDP figures published today.

While UK quarterly GDP figures came in positive – but only just – at 0.2% for Q4, monthly figures show the economy contracted 0.4% in December as the government stalled on Brexit. “While this is only a monthly figure, it is an unusually big drop and highlights the weak state of the economy,” said Schroders senior European economist Azad Zangana.

In December, the pound fell to its lowest level in 18 months when prime minister Theresa May (pictured) delayed a vote on the withdrawal agreement until after Christmas. It was subsequently rejected in a historic defeat of 432-202 votes against May.

In Q3 2018, UK GDP growth had been 0.6%, buoyed by the heatwave and England’s relative success at the World Cup.

‘Poor timing for a seismic shift in trade relations’

Brexit uncertainty and slowing activity among the UK’s major trading partners has been blamed for below consensus figures.

Premier Asset management fund manager Jake Robbins said economic troubles in the EU, the UK’s largest trading partner, had dampened industrial production and export growth, alongside plenty of poor economic data globally.

Robbins said: “With this fragile external economic environment then any adverse economic effects from Brexit would likely see considerable weakness in the UK economy, the timing of which is turning out to be quite poor for such a seismic shift in trade relations.”

UK GDP could slow to 0.6% on ‘no deal’

If the UK leaves the EU in March with a deal, EY Item Club anticipates GDP growth will remain at 0.2% in Q1, rising slightly to 0.3% in Q3 and hitting 0.4% to 0.5% in Q3 and Q4.

However, a no deal Brexit would result in GDP growth half that rate with the potential for stagnation or a mild recession in the second half of 2019, said chief economic adviser Howard Archer.

GDP growth would be 0.7% in 2019 and 0.6% in 2020, EY Item Club forecasts.

Sterling would drop sharply resulting in similar dynamics following the Brexit referendum whereby exporters were buoyed by the currency devaluation but importers faced higher costs.

A delayed Brexit would result in lower GDP growth than current forecasts. “Much would depend on how long the delay to the UK’s departure was and what final form Brexit took,” Archer said.

Zangana described the latest ONS release as an “ugly set of figures”. “Brexit is clearly having a negative impact on sentiment and growth, and it raises the risks of a recession in the first half of the year.”

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