It may have taken some time to register for many people or indeed reflect on the economic data, but the vote for Brexit is now really reaping its toll on the UK economy.
The UK went from being the fastest growing G7 economy ahead of the vote to the slowest by the final quarter of 2017, with even Japan and Italy surpassing it. This trend continued in the opening quarter of 2018, with UK GDP rising by a paltry 0.1%, and the year-on-year growth rate slowing to 1.2%, the weakest since Q2 2012. This is at a time when the world economy has gained momentum, with the IMF forecasting global growth of close to 4% this year, compared to 3.2% back in 2016. There were hopes that bad weather had temporarily depressed UK growth in Q1 and the economy would regain momentum in April. However, PMI survey data have disappointed for the month, showing no meaningful rebound in activity, with the manufacturing index actually falling further. The April CBI Distributive Trades Survey was also disappointing. No wonder then, as discussed below, that a rate hike is no longer on the table at the upcoming MPC meeting.
Meanwhile, the agreement reached in March between the EU and UK on a post-Brexit transition period to last until end 2020, fuelled hopes of a soft Brexit when the UK leaves the EU next March. However, there is still very strong resistance by many in the UK Government to the idea of any form of customs partnership with the EU after the transition period ends. The deep divisions within the UK government also mean it will be a challenge to get an EU withdrawal agreement through Parliament.
The risk of a hard Brexit remains, and as the economic sentiment waxes and wanes, so do Prime Minister May's odds of survival.
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