This is the third quarterly issue of the Global Counsel Brexit dashboard. More than two years on from the vote – and with just six months before the UK leaves the EU – we are taking the macro pulse of the UK economy, using a balanced set of 15 indicators. We are not attempting to isolate the impact of Brexit from all the other factors affecting the economy, as that is near impossible. Instead, we are providing a health check, to see where the economy is faring better or worse, compared to the years before the vote.
Cruising in the economic slow lane, for now
The economy bounced back in Q2, shaking off the effects of bad weather at the start of the year, and buoyed by a surge in retail sales as consumers enjoyed some sunshine, not to mention the World Cup. But when we look through the noise in the data it is hard to avoid the conclusion that the economy is cruising in the slow lane, motoring along for sure, but not at any great speed, and too slow to power a recovery in living standards after ten years of under-performance.
There are also signs that the economy may be at a turning point, as Brexit uncertainty rises and the deadline for a withdrawal deal nears. While our dashboard shows retail sales rising in Q2, spending on durables has fallen, suggesting households are nervous about larger purchases. And businesses appear equally cautious, with investment sluggish and Brexit uncertainty the biggest risk factor. Confidence in manufacturing and service is holding up – for now – but at levels that are underw helming.
The big question for the coming months is whether the Brexit negotiations could upset this steady, if unspectacular progress. A deal that sets Britain on a course for a Brexit that is not too disruptive could encourage consumers to spend more and give businesses the urge to invest. But if there is no deal this could damage confidence and see the UK stuck on the economic hard shou lder.
Even in the best-case scenario there are long-term, supply-side concerns for policymakers. We are already seeing signs that net migration from the EU is no longer a pressure valve on a tightening labour market, constraining future growth. And even if investment picks up, it is unlikely to return to levels normally seen at this stage in the cycle, holding back productivity growth. The prospects for the economy moving into the fast lane look remote.