Britain’s economy is entering a ‘new era’ — and it has nothing to do with Brexit

September 21, 2018
  • Brexit is pretty much the only game in town for watchers of the UK economy right now.
  • But away from the UK’s exit from the EU, Macquarie said a worrying new dynamic is forming in the economy.
  • Supply-side limits on the economy, like the tight labour market, are likely to start having a negative impact.
  • Macquarie calls it a “new era” for the British economy.

In the 816 days since Britain voted to leave the European Union, Brexit has been pretty much the only game in town for watchers of the UK economy.

But there’s a deeper change going on beyond Brexit related uncertainties. Analysts at investment bank Macquarie this week described what they call the beginning of a “new era” in the UK economy.

Analyst Matthew Turner thinks low wage growth and full employment means the UK economy will struggle to grow in future unless it can crack the persistent problem of productivity.

“UK economic performance over last decade [has been] driven by greater resource utilisation on the back of strong population and employment growth,” analyst Matthew Turner wrote in a presentation titled: “A new era, even without Brexit.”

“That is now changing as supply-side limits bite, and how efficiently resources can be used will determine whether relative strong growth can be maintained.”

Related: What impact is Brexit uncertainty having on the UK economy?

Turner’s argument is that rising employment and demographic strength allowed the UK to boom in the years since the worst effects of the financial crisis wore off. But that story is now coming to an end. Economic strength could suffer as a result.

Unemployment in Britain is pretty much as low as it can go, at just 4%. Employment growth boomed as unemployment fell, but growth is slowing. Meanwhile, wage growth is meagre, which creates a worrying economic disconnect.

“Rising nominal wages [is] needed to offset [the] expected fall in employment growth for aggregate spending to be maintained,” Turner said, noting that such a change ultimately needs higher productivity.

“At the aggregate level, this is reinforced by rapidly disappearing labour slack, meaning total household incomes cannot be boosted much more by rising employment, a key factor in the mid-2010s.”

At its simplest, Turner is effectively arguing that the number of people in employed in the UK is pretty much at a peak, meaning it will now struggle to create meaningful growth through simply adding more workers. Instead, it will need to improve productivity and output per person. There is currently little evidence of this materialising.

A key engine of growth is consumer spending. With low productivity persisting, and wage growth only increasing slowly, it is possible that household incomes could struggle going forward. This would likely be a major downside for UK growth as a whole.

Brexit will continue to dominate the economic story in the coming months, with forecasts of weaker growth once a deal is secured, or a major slowdown in the event of a no deal Brexit. But Macquarie’s analysis reminds us that there’s more going on in the economy than just the UK’s exit from the EU.

Source: Business Insider UK

5 ways life could become harder for British people if there is a no-deal Brexit

September 15, 2018
  • The latest tranche of no-deal Brexit papers have been released by the UK government.
  • They reveal that mobile phone calls in Europe could become more expensive.
  • International driving permits would be required to drive to Europe.
  • Britain would fall out of space surveillance programmes.

LONDON — The UK government on Thursday released the latest set of papers today warning UK citizens about what to expect if the government fails to negotiate a Brexit deal with the EU.

They cover everything from trade, to broadcast rules, to driving licences and add to previous releases which suggest a no-deal Brexit could also hit pensions, credit card payments and food imports.

Here’s everything you need to know about what more to expect if Britain crashes out of the EU without a deal.

Using your phone in Europe could become more expensive

man with mobile phoneShutterstock

Any UK citizen visiting Europe currently benefits from an EU directive which bars roaming charges on mobile phones. This means you’re not hit with a big bill while you’re away, just for making a few calls, sending a few texts or checking your social media accounts.

However, if Britain crashes out without a deal then that could all come to an end.

“In the unlikely event that we leave the EU without a deal, the costs that EU mobile operators would be able to charge UK operators for providing roaming services would no longer be regulated after March 2019,” today’s papers state.

“This would mean that surcharge-free roaming when you travel to the EU could no longer be guaranteed.”

Ministers insist that they would cap any new charges and mobile operators also insist they have no current plans to reimpose them. However, leaving the EU without a deal means this cannot be absolutely guaranteed for UK citizens.

Driving to the continent would become more difficult if no deal Brexit

calais driversGetty

If Britain leaves without a deal then UK driving licenses will no longer be accepted means to drive within EU countries. The government warns that in a no-deal scenario UK drivers would instead have to apply for an International Driving Permit (IDP) in the same way they do already to travel in many non-EU countries. Failure to do so would mean you could be in breach of EU law, with any travel insurance potentially invalidated too.

Medicines would become more expensive

prescription-pills-medicine-in-handperfectlab/Shutterstock

A no-deal Brexit scenario would mean Britain falling out of EU agreements on the import and export of medicines. This would mean that the UK would have to apply for individual licenses (costing around £24 a go) to import drugs. This would hit both consumers and the NHS hard and lead to potential shortages of key medicines.

Related: Chancellor says no deal Brexit will damage UK GDP for years to come

Gun smuggling could become easier

gunsAbout 2 million guns were reported stolen in the last decade. Elaine Thompson/AP

If Britain leaves without a deal then European Firearm Permits (EFPs) will no longer be recognised by the UK. Critics suggest this means there would need to be extra physical checks at the Irish border.

“This looks dangerous. The government hasn’t figured out how to sort out the Irish border, but now we’re being told that we’ll no longer be able to keep tabs on which EU citizens with guns,” Liberal Democrat MP and Best for Britain campaigner Layla Moran said in a statement.

“The Irish border will become the doorway to people wanting to bring guns into the country. This is no joke. We need a people’s vote with the option to stay in the EU and stop this madness.”

However, today’s government papers insis this would not weaken gun controls as “the police would continue to assess an applicant’s fitness to hold a firearm as part of their consideration of the Visitor’s Permit application.”

The UK could be the last to hear about an asteroid strike

dawn mission asteroid belt ceres dwarf planet ion thruster engine illustration nasa PIA18922_hiresNASA/JPL-Caltech

Leaving the EU without a deal means that Britain would fall out of the UK space surveillance programme. This means that it would no longer receive “space, surveillance and tracking data” from the EU and would be entirely reliant on info from the US.

Source: Business Insider UK

Chancellor says no deal Brexit will damage UK GDP for years to come

August 27, 2018

Chancellor Philip Hammond has outraged pro-Brexit Conservative MPs by warning that the UK may have to increase its borrowing by £80bn a year by 2033/34 in the event of a no-deal Brexit.

They have accused him of scare-mongering about the impact of leaving the EU on World Trade Organisation (WTO) terms rather than with a negotiated withdrawal agreement, and poured scorn on the Treasury’s analysis he has based his estimates on.

Yeovil MP Marcus Fysh tweeted that it was time to rev up his “take down of the Treasury’s incredibly dubious Brexit forecasts, since the chancellor seems determined to wheel them out again for yet another instalment of dodgy project fear”.

Meanwhile, Jacob Rees-Mogg, MP for North East Somerset and chairman of the European Research Group, told the BBC’s Newsnight last night that “the Treasury’s Brexit panic means you can no longer trust the Treasury’s forecast”.

Related: What impact is Brexit uncertainty having on the UK economy?

Hammond’s warning is contained in a letter he sent yesterday to Nicky Morgan, chair of the Treasury Select Committee.

In it he reiterates the findings of a cross-Whitehall briefing, published in January, which estimated that a no-deal/WTO Brexit would have an adverse impact on GDP over a 15-year period, reducing it by 7.7%.

He adds that additional analysis has indicated that chemicals, food and drink, clothing, manufacturing, cars and retail would be negatively affected in the long run, “with the largest negative impacts felt in the north east and Northern Ireland”.

“GDP impacts of this magnitude, were they to arise, would have large fiscal consequences,” he writes.

“The January analysis estimated that borrowing would be around £80bn a year higher under a no deal/WTO scenario by 2033-34, in the absence of mitigating adjustments to spending and/or taxation, relative to a status quo baseline. This is because any direct financial savings are outweighed by the indirect fiscal consequences of a smaller economy.”

Hammond says the analysis is currently being refined but he expects it to show that there will be a more damaging effect on the economy and public finances where there are higher barriers to trade with the EU. “These are conclusions that many other credible external organisations have come to independently, including the IMF, the OECD, the LSE and NIESR,” he adds.

In the letter, he gives his backing to the July White Paper – the Chequers agreement – and suggests that the economic and fiscal impacts of its proposals will be significantly better than no deal, “protecting jobs and livelihoods and supporting the UK and EU’s commitment to no hard border between Northern Ireland and Ireland”.

Earlier this week, Rees-Mogg wrote to Conservative associations urging them to reject the Chequers agreement which he believes would “shackle [the UK] to the EU forever”.

“We would be out of Europe yet still run by Europe,” the letter said. “This is why the prime minister should ‘chuck Chequers’ and instead seek a Canada-style free trade agreement with the EU to make the most of the global opportunities that lie ahead.”

He added that it was time the government realised that the EU stands to lose much from a no-deal Brexit and “stopped being cowed by the EU’s threats”.

Source: Economia