Britain’s economy is trapped in “no-man’s land” by Brexit and the next decade could be the weakest for growth since the second world war, a former senior Bank of England policymaker has warned.
Andrew Sentance, a former member of the central bank’s interest rate-setting monetary policy committee (MPC), said: “The UK economy will be limping on for a while, until Brexit negotiations are fully resolved. I can see the UK being in this limbo-land for quite a while – certainly until the late 2020s.”
The warning comes as the Guardian’s Brexit dashboard reveals robust growth at the start of the year, fuelled by a dramatic rise in stockpiling before the original Brexit date of 29 March, now postponed until the end of October.
Sending sterling tumbling on the foreign exchanges over the past month, observers now fear that Brexit has been transformed from its previous status as a time-limited process into a structural feature of the UK economy, with the prospect of complex and protracted negotiations dragging on growth for years to come.
To gauge the impact of Brexit on a monthly basis, the Guardian is monitoring eight economic indicators, along with the value of the pound and the performance of the FTSE 100.
Economists made forecasts for seven of those barometers before their release, and in three cases the outcome was worse than expected. In three cases, the result was better than forecast, while one met the expectations of City economists.
The latest snapshot reveals a mixed picture for the economy amid the hiatus in talks over leaving the EU, after the negotiations reached fever pitch earlier in April as a full-scale national emergency.
Business activity has kicked into reverse amid a lack of new work for firms to replace completed projects, as companies put decisions on hold owing to the lack of clarity over Brexit. Manufacturers have, however, been bolstered by stockpiling to the most intense levels on record for any G7 economy, perversely fuelling higher GDP growth despite the malaise.
The UK posted record monthly goods trade deficits in both January and February as business rushed to buy raw materials, components and merchandise from overseas before the previous 29 March deadline in the Brexit talks.
Economists fear the stampede to protect against a disruptive no-deal scenario could lead to sluggish economic growth in future as firms run-down their supplies. The EY Item Club forecasting group downgraded its growth projections for the UK to 1.3% for 2019 and 1.5% for 2020 for this reason, warning that the strong start to 2019 was likely to be a “false dawn” for Britain. The economy grew by 1.4% in 2018.
Against this backdrop, and after Theresa May delayed the Brexit process earlier in the month, the Bank of England is widely expected to keep interest rates on hold when it releases the decision of the MPC and its quarterly inflation report on Thursday.
The Guardian’s Brexit dashboard also reveals some bright spots for the economy from the latest economic news over the past month.
Consumers appear to have ignored the political turmoil and kept on spending on the high street, despite fears that sales would fall as Brexit neared. Households were also handed a reprieve from inflation unexpectedly holding steady at 1.9% in March, while wage growth has risen to the strongest levels in a decade, enabling them to start rebuilding their finances.
Unemployment remained at the lowest level since the mid-1970s, in a sign that Brexit has not deterred employers from hiring staff. However, economists believe that firms have put off spending on technology and hired workers to meet demand instead.
The latest figures for productivity – a measure of economic output per hour of work, which is key for driving up living standards over the long term – showed that Britain’s efficiency gains slowed in 2018.
Last year, business investment, which is key for driving future productivity gains, fell for four quarters in a row for the first time since the financial crisis. Economists fear that protracted delays in the Brexit process could further dampen investment, with a knock-on effect for growth in future.
Writing in the Guardian, David Blanchflower, another former member of the Bank’s MPC, said: “The short-term picture has not been bad but Brexit is still having a chilling effect on the economy.”
