Brexit Poses Challenges to Britain’s Economy

LONDON (AFP) — British unemployment has hit a 45-year low, official data showed Tuesday, but the economy still risks falling into a deep recession due to the turmoil created by Brexit.

Here is an assessment of the economy and where it is heading, as Britain prepares to leave the European Union on Oct. 31, with or without a deal, according to Prime Minister Boris Johnson.

Britain’s unemployment rate eased in July to 3.8%, down from 3.9% in June and the lowest level since 1974.

Annual wages growth climbed to 4.0%, the highest level since 2008, but skewed by bonus payments.

On the surface, the data looks positive, but Britain’s low unemployment rate is not boosting productivity. Many workers are in part-time work or on “zero-hour contracts” offering no minimum guarantee of hours, analysts say.

“Employment has been rising appreciably but growth has been lackluster — so output per-hour worked has actually been falling,” Howard Archer, chief economic advisor to forecasters EY ITEM Club, told Agence France-Presse on Tuesday.

“There may be an element of some companies taking on workers recently out of concern that with the labor market pretty tight and Brexit occurring, they may be unable to get the quality of workers they need in the future,” he said.

Archer added: “While earnings growth has been rising over the past year, it still remains much cheaper and less risky in a highly uncertain environment to take on labor rather than invest.

“It is also much easier to reverse the taking-on of extra workers than pulling the plug on an investment project if the situation deteriorates.”

Analysis of the health of Britain’s economy can change quickly. Last week, experts reckoned on the country heading for recession this year even before Brexit, amid a global slowdown.

However, the outlook changed for some after official data Monday showed that UK economic growth grew by a better-than-expected 0.3% in July. Market experts still expect a severe downturn in the event of a chaotic EU departure.

“The UK economy remains in a strong position, defying calls for a recession,” Chris Beauchamp, chief market analyst at IG, said after the gross domestic product update and after the latest “solid, if unspectacular” jobs report.

The pound, seen as a better indicator of the UK’s economic health than the London stock market, which is loaded with multinationals, continues to suffer Brexit-fuelled volatility.

Sterling last week slid below $1.20 for the first time in nearly three years — reaching the lowest level since 1985 except for a 2016 “flash crash”.

One of the biggest consequences of a weak pound has been to push up import costs, which contributed to higher UK inflation.

But while the Bank of England would ordinarily look to hike interest rates to put a lid on rising inflation, Brexit uncertainty has caused it to sit tight.

Supermarkets have sought to avoid passing on their higher costs to consumers owing to strong price competition across the sector.

But small businesses are finding it harder to shield themselves, and Britons heading abroad are facing costlier holidays.

While Britain may avoid falling into recession should it reach an exit deal with the European Union, experts predict a dramatic slowdown in the event of a no-deal.

The Bank of England’s latest assessment is for a slide in British GDP of 5.5% after a no-deal Brexit.

Unemployment would surge to 7.0% and the annual inflation rate soar to 5.25% from its current 2.1%.

© Agence France-Presse

%d bloggers like this: