Britain’s Economy Is Heading Into The Unknown Because Of Brexit

“Official trade statistics show that the European Union is the destination for about half of all British goods exports. The trading links are bigger if we include the countries that the United Kingdom trades freely with because they have a free trade agreement with the European Union. These agreements mean that 63% of Britain’s goods exports are linked to European Union membership” (The Economic Impact of Brexit, Capital Economics, February 2016)

At this juncture it still is completely unknown whether a favorable trade agreement between Britain and the other EU members will be reached.

Under a “worst case” scenario there would have no agreement, and Britain would face tariffs under ‘most-favored nation’ rules.

However, aside from the trade issue, there should also be worries about future and current investment spending in the UK economy.

While growth seemed to improve in most advanced economies last year, the reverse was the case in the UK. The British economy expanded by 1.4% (y/y) in the fourth quarter of 2017 following a 1.8% expansion in the previous period.

The fourth quarter of last year recorded the weakest expansion since the second quarter of 2012. In 2017, the GDP grew by 1.8% compared to 1.9% in 2016.