Politics, Economy, Europe

UK economy out of the frying pan into the fire

Economy was beset by low business, consumer confidence in 2019; faces tough EU trade talks in 2020

Karim El-Bar   | 11.01.2020
UK economy out of the frying pan into the fire

LONDON

As the U.K. prepares to leave the EU at the end of January and trade talks are about to begin, confidence in the British economy is in question after three years of Brexit turmoil.

Tough end to 2019

The British Chamber of Commerce (BCC) carried out a poll of thousands of businesses at the end of 2019 to get a feel for business confidence. Indecision and delay over Brexit has taken its toll.

They found investment plans by manufacturers were at their lowest point in eight years, and export and domestic orders from factories were negative for two straight quarters for the first time in 10 years.

"The UK economy limped through the final quarter of 2019,” the BCC said. "The fourth quarter was characterized by a broad-based slowdown in the dominant services sector with all key indicators weakening in the quarter, amid sluggish household expenditure and crippling cost pressures."

The group predicts the economy will grow by only 1% in 2020.

"Despite some improvements, indicators in the manufacturing sector remain very weak by historic standards,” the BCC added. "A faltering service sector together with listless manufacturing activity points to a downbeat outturn for UK GDP growth in the fourth quarter of 2019."

Services account for 80% of the U.K. economy.

Overall retail spending decreased 0.9% in November and December, with 2019 being the first year since 1995 with a full-year fall in sales according to the British Retail Consortium (BRC).

“The public's confidence in Britain's trade negotiations will have a big impact on spending over the coming year,” said BRC chief executive Brian Dickinson.

Local media also reported the big four U.K. supermarket chains struggled during the Christmas period and lost sales, with the sector suffering the slowest sales growth in four years – just 0.2%.

Part of it was due to Brexit uncertainty, but also the continued expansion of cut-price supermarket chains Lidl and Aldi.

Last year also saw new car sales drop to their lowest levels since 2013, declining by 2%. Brexit uncertainty played its part, as did tougher rules on diesel vehicles.

Bloomberg reported that by their calculation, Brexit already caused £130 billion ($170 billion) in losses to the economy, with a further £70 billion estimated by the end of the year.

The news site reported the British economy was now 3% smaller than if it had not voted for Brexit, and slipping behind its G7 peers.

Some local media reports are positive. The belligerently pro-Brexit Daily Express regularly publishes causes for optimism with regards to the future of the U.K. economy.

Following record tourist figures in August and September, for example, the paper reported an expected 6.6% increase in tourism in 2020, linking the forecasted increase to the positive benefits of Brexit.

The tabloid accepted the fall in new car sales, but reported: “BREXIT will see a boost in the UK car market as one in six admit the end of uncertainty will increase their confidence to purchase vehicles after the UK’s departure on January 31.”

Tough start to 2020

On Jan 9, the EU’s chief Brexit negotiator Michel Barnier said: “Nobody should doubt the determination of the commission, and my determination, to continue to defend the interests of EU27 citizens and businesses, and to defend the integrity of the single market.”

He was referring to the EU’s state aid policy and adherence to its regulatory standards to ensure a “level playing field.”

U.K. Prime Minister Boris Johnson said he wants a "broad free trade agreement covering goods and services, and cooperation in other areas" but without regulatory alignment with the EU, and he wants it by the end of 2020. He has insisted there will be no extensions to the talks.

“The level of access for the British products to our market will be proportionate to the level of ambition of common agreement on these rules and standards,” Barnier said setting out the battle lines for the year ahead.

On Jan 8, the new European Commission president Ursula von der Leyen spoke in London ahead of a meeting with Johnson and said: “We will go as far as we can, but the truth is that our partnership cannot and will not be the same as before and it cannot and will not be as close as before because with every choice comes a consequences with every decision comes to a trade-off.”

“The more divergence there is the more distant the partnership will be,” she added.

Von der Leyen also said Johnson’s deadline was “very tight” and that “you cannot expect to agree to every single aspect of our new partnership” by 2020.

This indicates the EU expects an extension to the talks or a deal more limited in scope by the end of the year.

After a tough end to 2019, the economy has an even tougher start to 2020 to get through.

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