Brexit: How are things with the UK? - BNPP

Analysts at BNP Paribas, suggest that for those who still have any doubts about UK growth, the prospects of Brexit have clearly strained the country’s economic performance.

Key Quotes

“Growth has been slashed in half since 2015. The economy is barely growing at just over 1%, whereas continental Europe and the US are churning along at 2.5% and 3%, respectively.”

“The value of Sterling has plunged, fuelling inflation (notably for imported foods) and eroding household purchasing power. Low income households, who have fewer savings to fall back on, have little choice but to cut spending. As some feared, the first victims of Brexit can be found among those who voted in favour of “leave”.”

“As to companies, investment has been somewhat more resilient, possibly because corporate leaders still refuse to believe in a “hard” Brexit, even in the most recent surveys.”

“The business climate even rallied a bit last December, after the UK reached a compromise with Brussels on the withdrawal terms.”

“Yet there are few reasons to rejoice. There is still a risk that negotiations with the EU could collapse or be postponed.”

“This is mainly due to the UK’s position, which is undermined by internal dissension and its persistent ambiguity on numerous issues.”

“The vital question of re-establishing a border between the two Irelands still has not been settled. The Prime Minister, Theresa May, guarantees that the Emerald Isle will not be separated by a “hard” border, but at the same time, she favours the total withdrawal from the Single Market and the Customs Union, which seems contradictory.”

“Similarly, there are still questions about the status of EU citizens who want to establish residency in the UK during the transition phase towards Brexit.”

“Even so, the negotiators agreed to move on to phase 2. It does not promise to be an easy task.”

“In October 2018 – just 9 months from now – the contours of the future trade relationship between the EU and the UK must be drawn up and submitted to the UK and European parliaments for approval. And we still do not know whether the services sector, notably financial services, will be included in this framework.”

“Assuming that a framework agreement is approved, the definitive withdrawal would occur in March 2019. It would be accompanied by a transition period of just under two years, during which the UK would continue to operate within the Single Market, albeit without participating in any EU decision-making.”

“The UK will also have to honour its financial commitments, comply with EU Court of Justice rulings, and respect the principle of the free movement of persons.”

“It goes without saying that the UK’s executive arm, which is already supported by a fragile majority, faces a politically risky period ahead.”

“Less than a year from the official withdrawal date, Brexit is far from being a done deal.”