The UK economy faces recession in the event of a no-deal Brexit happening this year according to the Organisation for Economic Co-operation and Development.
The OECD has downgraded the UK’s growth for 2019 to just 0.8% (down from 1.4%), at the same time that IHS Markit has reported confidence levels have hit the lowest since both the Brexit referendum result in 2016 and the financial crisis in 2008/09.
In their official press release, the OECD said: “The costs would also be magnified if this also induced a further decline in business and financial market confidence and disruptions in financial markets.
“In such a scenario, the likely near-term recession in the United Kingdom would generate sizeable negative spillovers on growth in other countries.”
The Purchasing Managers’ Index (PMI) is sitting at 51.3 points – up from January’s 50.1 but still close to stagnation. The latest concerns are centred around BMW, who have suggested moving production of the Mini from Cowley in Oxfordshire in the event of no-deal, and around Peugeot, who won’t invest anymore in their UK operations until Brexit is resolved.
Construction is also at a low point, with activity so low that the Construction PMI index is at 49.5 points – a contraction in activity. Both civil and commercial work has declined in demand, with the latest figures matching the same negative performance recorded last March during the ‘Beast from the East’ snow storm.
Figures from both IHS Markit and the Chartered Institute of Procurement and Supply also flagged up the knock-on effect that uncertainty over Brexit was having. Struggling demand due to the unknown impact of leaving the current customs union, as well as the government’s blunder with the ferry deals and Eurotunnel, have hamstrung business confidence in the UK’s exit from the European Union. UK companies are delaying spending until they have a solid outcome for Brexit, and figures from services, manufacturing and construction showed employment was falling at the fastest rate for nearly nine years.
Mark Carney, Chairman of the Bank of England, took a ‘glass half full’ approach when speaking in the House of Lords yesterday, suggesting that Brexit could be good or bad for the global economy.
The next step for the UK will be Tuesday’s meaningful vote in the House of Commons, deciding whether to back Theresa May’s Brexit deal once again. The PM was already soundly defeated in January, and the expectation is that – having received no further assurances from the EU over the Irish backstop – that the deal will be beaten once again. Despite the efforts of May, Brexit Secretary Steve Barclay, and the Attorney General Geoffrey Cox, no alterations or additional guarantees seem to have been gained for May’s deal. The follow-up will be a vote on Wednesday to decide whether the Commons permits no-deal at all and, if the government loses that vote, then a final vote will take place on Thursday to decide whether the House wishes the government to extend Article 50.
If MPs to go through with all three votes, then there is still the hurdle of the European Union for the government. Earlier this week President Macron told reporters that France was opposed to a Brexit delay and an Article 50 extension by the UK unless there was a clear plan and direction for such an exit in place. Given that this is unlikely to be the case it could be seen by some as interference to push for the UK to remain within the EU by throwing up obstacles to withdrawal.
