Brexit deadlock & UK economy stuck in low gear

UK-EU flags

On 29 March, the day the UK should have left the EU, the House of Commons decisively voted to reject Theresa May’s EU Withdrawal Agreement, leaving the Brexit process in a state of turmoil.

This was the third time the Prime Minister had asked MPs to approve the Brexit divorce deal that she concluded negotiating with the EU in November 2018. And, although the margin of defeat this time around was significantly less than on the previous two occasions, the bill still lost by 344 votes to 286 – a margin of 58.

it appears unclear whether the Prime Minister has a ‘Plan B’

Earlier last month, Theresa May had been granted an extra two weeks to come up with a Brexit solution following talks with EU leaders. This extension effectively pushed the Brexit deadline back to 22 May if she could get her withdrawal deal through Parliament or, if she failed to do so, 12 April in order to propose an alternative way forward.

At the moment, however, it appears unclear whether the Prime Minister has a ‘Plan B’. Indeed, senior government sources have suggested that the government is considering a fourth attempt to get the deal through parliament.

Meanwhile, MPs are continuing their efforts to find a consensus that a majority of the House can support in order to break the Brexit deadlock. Some kind of customs union is thought to be the most likely preferred option although, even if a majority for such a plan does emerge, it is unclear whether the Prime Minister would be willing to adopt that policy.

With the original deadline now passed, it remains difficult to predict what the ultimate conclusion to Brexit will be. A range of outcomes still appear possible including: leaving with no deal on 12 April; leaving with the current deal if the Prime Minister can somehow secure safe passage through the Commons; a longer delay and renegotiation if a consensus for an alternative plan emerges in parliament; revoking Article 50 and remaining in the EU; a second referendum, or a general election.

Meanwhile although official statistics show that the UK economy did stage a comeback during January, the bigger picture remains one of subdued growth as the country continues to grapple with Brexit.

The latest gross domestic product (GDP) data released by the ONS, shows the economy expanded by 0.5% in January, more than reversing December’s 0.4% contraction. Some economists, however, have suggested that part of January’s increase was due to businesses stockpiling in a bid to hedge against the risk of a chaotic Brexit, although ONS data was unable to establish whether this was actually the case.

Looking at the data on a rolling three-month basis, which smooths out any monthly volatility, the rate of GDP growth across the three months to January was a relatively sluggish 0.2%. This was exactly the same as the rate recorded during the final three months of 2018, suggesting that growth momentum in the UK economy has stalled.

Commenting on the figures, Rob Kent-Smith, Head of National Accounts at ONS, said:

“Across the latest three months, growth remained weak with falls in manufacture of metal products, cars and construction, repair work all dampening economic growth.”

Meanwhile, the GDP forecast produced for the Spring Statement by the Office for Budget Responsibility (OBR) – the government’s independent economic forecaster – shows that the UK economy is now expected to grow by just 1.2% across the whole of 2019. This projection was down from the previous forecast of 1.6% made in October and, if accurate, would be the UK’s lowest rate of growth since 2009.