Brexit uncertainty persists

The uncertainties around Brexit persist, after the parliament rejected Boris Johnson’s accelerated timeline for Brexit, he has now pushed for an early general election in December. In order to avoid chaos and an atmosphere of conflict between the EU27 and UK, the European Council agreed to extend the Brexit deadline until 31 January 2020. Boris Johnson has repeatedly said that the UK would leave on 31 October, but the law – known as the Benn Act – requires him to request a third Brexit extension. The deal has to be ratified by both sides in order for the UK to leave the EU in an orderly manner and the extension allows for more time for the deal to be ratified.

British politicians are divided; some want the UK to leave and some want the UK to stay in the EU. The next general election was due to be in 2022, but parliament has now agreed to hold an early election on 12 December 2019. Boris Johnson was forced to drop his Brexit strategy after MPs voted against the three-day timetable of the Brexit deal and Boris Johnson now hopes this early election will increase the number of Conservative MPs in parliament, making it easier for him to deliver Brexit.

The British Chambers of Commerce (BCC) reports in their latest Economic Review that the Brexit uncertainty and a slowing global economy continue to weigh heavily on the UK’s growth trajectory. The BCC downgraded its UK forecast for 2020 due to a weaker outlook for investment, trade and productivity and the lack of clarity over Brexit. UK’s net trade is expected to negatively affect GDP growth over the next few years because of the lack of clarity around UK’s future trade arrangements, weaker global growth and continued global trade tensions. Businesses have identified heightened political uncertainty as a factor that has affected growth negatively.  Demand for European exports are declining amid global trade tensions, especially because of trade tensions between the world’s two largest economies China and the US. European businesses expect a continued decline in the manufacturing industry and going into 2020 BusinessEurope expect to see effects from the slowdown in manufacturing output to begin affecting the rest of the economy. 

With an increasing political uncertainty BusinessEurope is already seeing some indications that consumer confidence and household propensity to consume is dropping. Retail sales have slowed in EU28 through 2019 and the forthcoming results from Christmas sales will provide an important indication of consumer confidence and mood. Data from Eurostat shows that the household saving rate is rising sharply.  Global trade tensions will likely have both immediate and longer-term effects by deferring investments and prompting companies to consider amending supply chains. The OECD has downgraded its economic outlook for 2019 and overall data indicate that the UK economy remains under pressure from Brexit uncertainties and weakening global conditions. Avoiding a disorderly Brexit is important both for the EU and the UK as a messy Brexit would deliver a major economic shock to the UK economy, and have negative effects for the EU as well as the UK. 

Article 50 allows for member states to withdraw from the EU and after the British Referendum vote in 2016 there have been a number of complex matters to be resolved between the EU27 and UK. Despite uncertainties around Brexit negotiations, the EU has maintained committed to an orderly Brexit, in order to reduce uncertainty and disruption for citizens, businesses and member states. The negative economic effects of a no-deal Brexit along with implications for security and defence cooperation, trade and financial cooperation among other matters is the main reason for the EU’s continued commitment to negotiating a Brexit deal.  The EU wants to have the closest possible partnership with the UK even after Brexit. The Bank of England predicts that if the UK moves towards a deep and free trade agreement with the EU, the UK economy will recover and grow faster than the subdued pace of slow supply growth. 

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