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UK Investment Markets: Weekly Update – July 29th 2019

UK Economy to Weaken Over 2019 and 2020 Even With Brexit Deal

According to latest forecasts from the National Institute for Social and Economic Research (NISER), UK economic growth will slow this and next year even if a no-deal Brexit is averted.

A Brexit with an agreement that would include a transition period of around two years is widely considered to be as likely as a no-deal Brexit and as another delay in October, NIESR said in its report published last week.

Overall, the think tank sees a 30% chance GDP will decline over the course of 2020, and that probability will be higher if Britain crashes out of the EU.

If a no-deal Brexit is avoided, NIESR predicts the economy will grow 1.2% this year and 1.1% next year as uncertainty about Britain’s future trading relationship with the bloc will hold back investment, depressing productivity growth.

According to official data, the British economy expanded by 1.4% last year. If Britain leaves the EU without a deal, economic growth will be 1% this year and zero in 2020, NIESR said.

Forecasts Based on Assumption of Planned Brexit Strategy

The think tank has focused on what it calls an “orderly” no-deal Brexit, which assumes sufficient contingency measures – such as well-prepared trade infrastructure – are in place by 31 October and interest rates are cut as soon as Britain departs, to soften the economic blow.

“We would expect GDP growth to fall to zero in 2020 and [consumer price] inflation to rise above 4% in response to a lower exchange rate and accommodative monetary policy,” NIESR reports.

It forecast that the pound would sink below $1.20 or even lower and that unemployment would rise.

Arno Hantzsche, senior economist at NIESR, noted that the preparations necessary to ensure an orderly no-deal Brexit would have to be stepped up “almost immediately”.

“There is a risk that companies, households, even the government may be a little bit complacent this time compared with March because you had a similar situation before: deadlines were broken but it didn’t come to a no-deal outcome,” he said.

The NIESR report added that there is limited warehouse space after stockpiling earlier in the year and some cash-strapped companies may not be able to do more to prepare for no-deal Brexit.

The think tank’s forecasts – which, it warned, are particularly uncertain this time – diverge slightly from earlier predictions by the International Monetary Fund and the government’s spending watchdog, the Office for Budget Responsibility (OBR).

In its latest World Economic Outlook compiled in mid-March, the IMF predicted that British GDP will grow by 1.2% this year and 1.4% in 2020 if a Brexit deal is reached – mirroring the forecasts in the OBR’s half-yearly economic outlook report, released around the same time.

If Britain left the EU without a deal, it would fall into a year-long recession, the OBR said last week. This forecast was based on a type of a no-deal Brexit outlined by the IMF that assumes no border disruptions. The fund’s more severe scenario incorporates significant border disruptions that increase Britain’s import costs.

On another point, NIESR appears to be in greater agreement with the OBR: the think tank said there is a 25% chance that the economy is already in a technical recession, defined as two consecutive quarters of contraction. The OBR also said last week that the UK may be slipping into “a full-blown recession”.

How to Keep your Savings and Investments Safe Whatever Happens

Investor Live was founded with the mission of providing information and resources to help normal people save and invest their money wisely. Retail investors are fortunate to have the opportunity to invest in big assets without taking all the risk on themselves as sole owners.

We always recommend products that give you fixed returns which is never more important than when financial markets are shaky. Although you won’t earn the returns you will for a high-risk opportunity, you at least know you are not likely to lose all your money.

Preferably, you want to keep your money locked into an instrument that is going to give you exactly what you calculate it to when you invest your money. Products with terms of around 12-24 months that have underlying real estate assets are the best bet for keeping your hard-earned capital as safe as possible as the post-Brexit dust settles, (God willing).

About the Author

Amanda Wright is a former risk analyst at Bankers Trust, with specific experience of mergers & acquisitions and corporate finance. As a contributor to Investor Live, Amanda provides valuable insights into the technicalities of fundamental analysis in a way that is easy to understand, to provide retail investors with the tools to make considered investment choices.