UK economy on track for weakest year since 2008 financial crisis
Despite a gloomy growth outlook, a new report was optimistic about the British labour market
The British economy is on track for its weakest year since the 2008 financial crisis, as Brexit turmoil weighs in on growth, economists said on Friday.
Following a year rocked by a parliamentary wrangling over Britain’s departure from the European Union, surveys suggest economic growth in the final quarter of the year has stalled.
Prime Minister Boris Johnson has vowed to take Britain out of the bloc by January 31 and that too has had an impact on the economic growth in the final quarter. The Bank of England said earlier this month that it expected the gross domestic product to grow by only 0.1 per cent in the final quarter as spending slowed before the Brexit deadline.
The Conservatives have promised to increase business investment if they secured a parliamentary majority.
But Mr Johnson’s refusal to rule out a no-deal Brexit has held back business investment, two former Bank of England monetary committee members told The Guardian on Friday.
Economists also fear that Britain is set to face a difficult 2020 negotiating a new trade deal with the EU. Mr Johnson has said that he is optimistic that Britain can achieve this in the 11-month window between Britain’s departure from the bloc and the end of the transition period.
Ursula von der Leyen, president of the European Commission, however, has been more sceptical. On Friday, she expressed “serious concern” about whether an agreement would be reached by the end of 2020 deadline.
Andrew Sentance, a former member of the Bank of England’s monetary policy committee, wrote in The Guardian on Friday: “A new government and a new Bank of England governor. This should be a fresh start for the UK economy. But the dark shadow of Brexit continues to overhang our economic performance and prospects.
“In its latest assessment, the Bank expects growth 0.1 per cent in the final quarter of this year. That would mean that the UK economy has not grown at all since the first quarter of the year. 2019 is likely to turn out to be the weakest year of economic growth since the financial crisis.”
A report released on Friday was negative about UK economic growth this year, but was optimistic about the country’s labour market in 2020. The Resolution Foundation predicted that British employment could fall in 2020, despite average wages being expected to surpass their pre-crisis record.
“Brexit uncertainty and global headwinds sapped business confidence, leading to stalling investment and zero productivity growth. But through it all, the labour market sailed serenely on,” the think tank said.
“The lesson to take from all this is that a slowing economy does, in the end, mean a slowing labour market, but not that the UK’s labour market must inevitably have a tough 2020. The actions of policy makers, and indeed the reactions of businesses and consumers are what will decide our economic future,” it added.
The report said reduced uncertainty, a return of investment to the UK and a more supportive global environment would have a positive impact on its economy. It added that it was crucial that employment remains near record highs and stronger pay growth is sustained.
“However, the chances of these economic tailwinds riding to the labour market’s rescue are far from certain,” it warned.
Updated: December 27, 2019 06:02 PM