UK Economy in the Face of Brexit Uncertainty

Written by Alejandro Sarmiento

More than three years after the referendum that sealed the fate of the United Kingdom, the UK still remains a member of the EU, which can be attributed largely to bureaucratic turmoil and partisan politics. The EU andUK had achieved a deal following the Brussels Summit, but Prime Minister Johnson was forced to halt the Brexit process after a majority of 14 defeated his legislation in a second vote on a fast-tracked timetable, dashing hopes for a 31 October Brexit. The Labour Party’s Corbyn has stated that he is prepared to work in tandem with the government to achieve a “reasonable timetable” such that the Commons can reconsider and amend the legislation. This is good news for the first ministers of Wales and Scotland, Nicola Sturgeon and Mark Drakeford, who have likewise criticized Johnson for attempting to rush through the EU Withdrawal Agreement void of “detailed scrutiny.” Johnson was legally compelled to send several letters to the European Council, one of which asked for a three month extension to the withdrawal process. Tusk urged European powers to support an extension, and should he accept Johnson’s proposal, Brexit would be pushed back to 31 January 2020. Should the EU propose another date, Johnson would be obliged to accept. However, should the EU reject an extension, MPs would be forced to choose between Johnson’s deal and no deal at all. Speaking on behalf of Downing Street, Justice Secretary James Buckland has suggested that this could culminate in another national election. 

At the height of Brexit uncertainty, the economic impact of Brexit is heavily contested between opposing political factions. The economic impact of Brexit comes in several waves; the initial impact generated by uncertainty, and the long-term sustainable impact after the UK’s exit. Brexit uncertainty has already caused significant Sterling volatility and has hampered the outlook for the manufacturing, retail, and construction industries. A recent survey from the business lobbying group, Confederation of British Industry (CBI), found that leaving the EU’s customs union and single market without a deal had led most factory owners to cut back investment purchases and IT equipment at a rate not seen since the 2008 financial crisis. Moreover, the survey found that Brexit uncertainty has prompted waves of corporate insolvencies, company profit warnings, and a sombre forecast for manufacturing investment. With regards to insolvencies, analysis from KPMG has found that construction has been hit the worst, putting the industry ahead of retail for the most corporate insolvencies in 2019. Though the possibility of a no-deal Brexit has hung over the industry, the deal achieved by Johnson would allow a clean break from the EU’s single market and customs union, (with the exception of Northern Ireland, which would remain for the purpose of trade). Michael Spence, Nobel Laureate in Economic Sciences and NYU Stern Professor, embraced an optimistic view of the economic impact of Brexit in an October segment with Bloomberg, noting, “It is possible to have Brexit deliver a short-term hit, and then the UK develops a rather important, but somewhat different place in the global economy. I would not necessarily be pessimistic about the longer term.” Brexit proponents provide a more optimistic approach for the post-Brexit economy –  Johnson and Rees-Mogg, the Leaders of the House of Commons, suggest the opportunity for enhanced trade with the United States is a primary goal. Johnson aims to cast off what he sees as EU regulatory and legal standards that stifle economic growth. The economic partnership between the US and the UK is already one of the strongest in the world, exceeding $260 Billion last year. Severing ties with the EU will enable the UK to pursue a comprehensive free-trade agreement with the US, allowing the two countries to set the precedent on digital trade, e-commerce, and custom duties. As the House of Commons moves to amend Brexit legislation, the ultimate outcome of the withdrawal process is anything but certain. Political factions have spent years offering a range of projections from hopeful to cataclysmic, and only one thing can be counted upon to be certain: the UK’s long-anticipated next steps will define its role in the international geopolitical structure for centuries to come.