The picture is even more stark when looking at the confidence number which in the UK is floating around multi-year lows
It's not doomsday scenario but British economy is in worse place after Brexit vote
While the doomsday scenarios painted for Britain in the event of a “leave” vote have not materialised, the economy is clearly in a worse place than it might otherwise have been, says James Smith, a UK economist at ING.
“Overall, we [at ING] are expecting 1.5 per cent for growth for 2018,” Mr Smith told The National. “Given what we said before Brexit, when everyone was expecting doom and gloom, you could say that 1.5 per cent looks OK. But when you compare UK growth to its peers, it looks more alarming.”
The eurozone area is likely to grow at around 2.2 per cent this year, the fastest since the crisis, while the US is looking at 3 per cent.
“If the Brexit vote hadn’t happened, and we hadn’t had the consumer squeeze, the uncertainty etc, we should really be growing on par with the US this year,” he says.
The picture is even more stark when looking at the confidence number, which in the UK is floating around multi-year lows, whereas in the eurozone and the United States, “consumers haven’t been this happy since the early 2000s”, he says.
Bad weather has been a contributing factor in the slowdown, especially when looking at the 0.2 per cent contraction in the numbers of the construction sector, which is 6 per cent to 7 per cent of the country’s economy.
But that sector is not the biggest issue: the consumer picture is more worrying. The first quarter, according to some retailers, was one of the worst since the 2008 crisis, despite the fact that inflation is edging down and wage growth has started to improve.
“Whether it’s because of slower growth, or general Brexit uncertainty, people are less willing to invest in the bigger ticket items,” Mr Smith says.
“Also, oil prices have risen, so that’s eating into budgets too. So when you wrap all that together, we don’t really see things accelerating in the second half of the year, despite a recovery in the weather.”
The UK property market has also been sluggish, with prime central London being one of the worst-hit areas. Mr Smith argues that the lack of buyers, at least in London and the southeast, is a function of overall economic uncertainty, which is likely to persist.
“If people are not confident about the value of their property, it’s just another headwind for spending,” he says. This hits economic growth.
While the Brexit transition deal agreed in March was a welcome breakthrough in the talks with the EU, there are still clouds on the horizon. “The cliff edge, which everyone was talking about a few months ago, has just been kicked down the road rather than completely taken out of the picture,” he says.
“That’s the real concern, and that’s why we’ve not really seen investment intentions pick up.”
The main issue, he says, is that the transition period, set to run through to December 2020, isn’t going to be long enough to agree on a final deal.
“What’s becoming increasingly clear is that Brexit talks are going to stretch well into the transition period, if not take up all of the transition period, to thrash out the finer details,” he says.
“By definition, that means that unless the transition is extended again, you’re not going to necessarily have time for businesses to adjust.”
In the meantime, fears over a “Brexodus” of jobs and operations to cities such as Frankfurt, Paris and Dublin will not go away.
One of the reasons the job moves have been less bad than expected so far is that key European cities do not yet have the infrastructure to support a huge tidal wave of bankers from London, Mr Smith says.
London also has a deeper talent pool than in other European hubs.
“That’s another reason why we’ve seen fewer businesses move at this stage.”
But, he says, Britain hasn’t actually left the EU yet. “We’re not out of the woods yet,” he warns.