What is the Long-Term Outcome for the UK Economy?

Many critics of the UK’s decision to leave the EU say the only reason people are not feeling any pain is because Brexit has not really started yet.  Pending the invocation of Article 50, and with the UK economy posting stronger-than-expected GDP growth in Q3, an alarming underestimation of the negative long-term consequences of Brexit seems to have gradually superseded the bout of initial pessimism seen immediately after June’s vote.

Some metrics of economic performance do indeed suggest that the fundamentals of the economy are solid: for example, domestic output expanded by 0.5% quarter on quarter in Q3. Although this was a little slower than Q2’s 0.7% growth pace, it was still faster than the average forecast of 0.3%, defying experts’ prediction of an economic recession following a Brexit vote.

Furthermore, retail trade growth accelerated over the quarter, while inflation is also gradually picking up on account of a cheaper pound (albeit remaining well below the Bank of England’s medium-term target of 2%). September’s forward-looking indicators also bode well for future economic activity, with Markit’s Purchasing Managers’ Index (PMI) for the manufacturing sector rising to its highest level since mid-2014.

Notwithstanding the current economic bonanza, Dun & Bradstreet predicts that Brexit’s medium- to long-term economic impact on the UK will be significant and negative. With the UK heading for a ‘hard’ Brexit, we have downgraded the country’s risk rating from DB2c to DB2d (still just within the ‘low risk’ category). We are also maintaining our ‘deteriorating’ rating outlook.

This means Dun & Bradstreet Maintains a Deteriorating Rating Outlook for the UK:  To read the full story click on this link.

About the Author:  Daniele Friaetta is a Senior Economist at Dun & Bradstreet’s Advance Analytics Unit.