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Abu Dhabi, UAESunday 21 April 2019

UK economy 'would be 3% bigger without Brexit'

Uncertainty over departure from the EU has paralysed business decisions, says S&P

Britain's Prime Minister Theresa May delivers a speech in the House of Commons in London on December 17, 2018. S&P projects the UK economy would have been 3% bigger in 2018 without teh Brexit vote. Jessica Taylor/UK Parliament via AP
Britain's Prime Minister Theresa May delivers a speech in the House of Commons in London on December 17, 2018. S&P projects the UK economy would have been 3% bigger in 2018 without teh Brexit vote. Jessica Taylor/UK Parliament via AP

The UK’s economy would have been around 3 per cent larger by the end of 2018 had it not voted to leave the European Union two years ago.

The June 2016 referendum has changed the country’s business trajectory, according to the latest findings from the S&P rating agency’s Countdown to Brexit report, as uncertainty paralyses business decision-making. The extent of the change depends on the UK’s future relationship with the EU, as Brexit negotiations continue, it said.

“Regardless of which form that relationship will take, there is no doubt that the UK’s economic performance has already suffered from the mere anticipation of Brexit; after all, economic activity is driven by forward-looking behaviour,” the report said.

S&P’s estimate translates into average lost growth of £6.6 billion (Dh31.58bn) in lost economic activity (such as consumption, investment, tax) per quarter since the 2016 referendum, it added.

Last month, Prime Minister Theresa May’s withdrawal agreement was rejected by parliament for the third time, with her party failing to win over 34 Conservative MPs. Mrs May and her cabinet plan to bring her EU withdrawal agreement back to the House of Commons for a fourth attempt.

S&P’s report says the main economic impact on the UK since the referendum came via higher inflation as the British pound depreciated, which hit private consumption. Inflation peaked at 3 per cent in the fourth quarter of 2017 – eroding household spending power and weakening overall consumption.

The economic impact was slow to take effect, with gross domestic product growth standing at 1.8 per cent in 2017 – the same as the referendum year – and most sentiment indicators rebounding quickly after the initial shock post-vote.

However, GDP growth then slowed to 1.4 per cent in 2018, suggesting that Brexit anticipation and uncertainty was weighing on growth. “We estimate that, by the end of 2018, the size of the UK economy was already between 2.4 per cent and 3.4 per cent smaller than it could have been otherwise,” S&P’s report said.

Its central estimate, of GDP growth being 2.9 per cent slower, translates into average lost economy activity of £6.6bn (at 2016 prices) in each of the 10 quarters since the referendum.

Updated: April 8, 2019 08:18 AM

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