24 January 2019

Bloomberg: Postponing Brexit would be worse for UK economy Than May’s deal

While extending the negotiating period set to expire on March 29 would remove the imminent possibility of a chaotic no-deal scenario, it would leave the UK worse off than if Parliament accepted Prime Minister Theresa May’s current plan, according to economists.

Pushing back the departure prolongs the uncertainty that has already hit business investment and pushed consumer confidence to the lowest since 2013, according to JPMorgan Asset Management. Worse still, it would be unlikely to help the government reach any better outcome.

“Kicking the can down the road has a cost,” said JPMorgan AM global market strategist Mike Bell. “Time has a cost, dragging on growth.”

That view was echoed Thursday by European Central Bank President Mario Draghi, who told a press conference in Frankfurt that the “protracted length of time is not benefiting the overall economic climate in the U.K., also in the euro area.”

The lack of a settled deal is causing firms to “press the pause button,” despite low interest rates making this an ideal time to invest, Bank of England Chief Economist Andy Haldane said in an interview with the Daily Mail published Wednesday.

Deal Benefits

“On the assumption that some deal is done, that would reduce uncertainty and, we think, cause people to take their finger off the pause button and do a bit more investment spending,” he said.

For Dan Hanson at Bloomberg Economics, it’s a question of how long the delay lasts. His uncertainty model suggests a three-month postponement could slow growth to 1.5 percent this year from his central projection of 1.7 percent -- which is based on some form of Brexit agreement being reached with the EU in time for a March departure. But six months would crimp it to 1.3 percent.

Beyond that time period, he sees a less clear impact as the cliff edge disappears from the view of businesses and households, potentially lifting some of the paralysis.

Still, the economic hit from a delay is likely to be far smaller than the disruption caused by a no deal -- helping to explain the pound’s recent strengthening. Last year, the BOE’s worst-case scenario saw the economy shrinking by 8 percent within a year, property prices plunging almost a third and the pound losing a quarter of its value. [...]

Full article on Bloomberg

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