The world boomed in 2018 with GDP growth at 3.8%. The US grew at 2.8%, with China at 6.6% and India at 7.5%. In comparison, the Euro area grew at 1.8%, with the UK at 1.4%. At the time of the Brexit referendum in 2016 the UK was the fastest growing European economy.
In Europe there are a range of issues aside from Brexit, such as the Italian budget position, the rise of popularism, and migration to name but a few. The EU has also just completed a comprehensive trade deal with Japan. For the UK, however, the outcome of Brexit is all important: The outlook is difficult to predict as the uncertainty continues.
It is a matter of weeks to March 29th when the UK leaves the EU and we remain in a position of uncertainty that has been ongoing for 2 years. The Withdrawal Agreement is not passed through Parliament and we do not know the details of the future relationship between the UK and the EU, but there are several scenarios to consider;
- Soft Brexit – A Withdrawal Agreement and the outline of a deal in place for a close alignment with the EU following the transition period. (Possibly based on Teresa May’s deal with concessions on the backstop to enable it to pass through Parliament)
- Hard Brexit – A withdrawal Agreement for a transition period and an outline of a deal in place for a clear break from the EU in 2020.
- No Deal – crashing out on 29th March 2019 because no Withdrawal Agreement is in place and the trading arrangements default to WTO rules. (unlikely as there appears to be a majority in Parliament that will prevent this from happening).
- Extension to Article 50 – this would provide more time to complete the Withdrawal Agreement and can be triggered with agreement from the EU, but must be for a specific reason, e.g. another referendum or a general election.
- No Brexit – An unlikely outcome as it is not supported by any of the major parties.
The Brexit Conundrum
The issue facing the UK Parliament is that there is no majority for any Brexit option. The question in the 2016 referendum does not give any indication of the type of Brexit the people voted for and MP’s are in deadlock as we move towards 29th March. This lack of Parliamentary majority notably applies to the Withdrawal Agreement between the government and the EU, which includes the Irish backstop. Despite this deal being agreed between the EU and the UK Government, it is not able to pass through Parliament largely due to the backstop arrangements. The EU state they will not open the negotiation on the withdrawal agreement and Parliament will not pass the legislation. This deadlock is why there is a real risk of the UK “crashing out” of the EU.
Gross Domestic Product
The world economy grew approximately 3.8% in 2018, but this is forecast to slow to 3.5% this year driven by a slowdown in the US and China. The growth in 2018 is described as a high water-mark by some commentators, but the forecast is to hold around 3.5% growth through to 2021. This positive backdrop will provide support the UK through the Brexit process.
The Euro area is expected to grow by 1.6% in 2019, down from 1.8% in 2018. Growth in the UK is expected to pick up marginally from 1.3% in 2018 to 1.5% in 2019. But, of course, we do not know the outcome of Brexit yet, so these forecasts assume a deal before the end of the Article 50 period scheduled for 29th March.