While the Brexit referendum did not bring the economic crash many feared it would, business investment has been hit hard
A BREXIT DEAL this month looks highly unlikely. A surly briefing from Downing Street, criticising other European leaders, suggests that a blame game is well and truly under way. And the date of Britain’s departure from the European Union is still unknown, despite Boris Johnson’s promise to quit, “do or die”, by October 31st. But Brexit—and the uncertainty surrounding it—has already done plenty of economic damage.
When Britain voted to leave the EU in June 2016, many forecasters warned the result would plunge the country into recession. One government study predicted that house prices would fall by up to a fifth and that unemployment would rise by over 800,000. Such a slowdown did not happen. Although British GDP shrank by 0.2% in the second quarter—the first contraction since the fourth quarter of 2012—the economy has still grown by 4.6% since the referendum. The unemployment rate is at a 45-year low.
In the long run a lack of business investment could damage productivity and reduce economic growth. Figures published on October 8th show that Britain’s labour productivity, measured as output per hour worked, was 0.5 per cent lower in the three months to June than in the same quarter last year. That is the biggest contraction since 2014.
Things are not likely to get better soon. More than three years after the vote, no one yet knows what Brexit will look like—or even whether the country might be about to leave the EU abruptly with no deal. Until the date and terms of Britain’s departure are set, investors are likely to stay on the sidelines.
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