Brexit worries for the UK economy are becoming increasingly obvious

Bad news from the UK industry: manufacturing output in April suffered its greatest fall of the last five years – a figure of minus 1.4 percent on the previous month was recorded. This is already the third consecutive fall. The decline was not quite as disastrous for the total industry, as oil production increased significantly. The export figures were also weak. Exports fell by almost six percent compared with the previous month and are now down more than seven percent on April 2017.

The UK figures now take their place among the series of weak industrial and export data currently being reported from many EU countries for the start of the second quarter. Although exports throughout the whole of Europe are faltering, this setback is particularly harsh for the UK. Thanks to the robust international demand that was also fuelled by the weak pound, the impact of the forthcoming Brexit was not as noticeable thus far. Consumer demand, which is one of the most important pillars for the UK economy, had eased sharply for more than a year now and had clearly pushed down growth by roughly one percent. However, exports were still able to cushion this.

The exceptional boom in the UK export industry now appears to be coming to an end, as suggested by the details on industrial production, which show weaknesses especially in the export-oriented sectors. There are certainly a few reasons for this: for one, we have the numerous uncertainties worldwide that threaten the global recovery and have already left a significant mark on the European mainland. After all, nearly half of all UK exports go to the other EU countries. Also, the pound sterling has strengthened again in recent months and reduced the UK industry tailwind somewhat. This did not ease again until mid-April.

Ultimately, the industry will not remain immune to the arguments currently surrounding Brexit. After all, the exit date is fast approaching but the British government is deeply split and coming dangerously close to a crisis. Even the planned transition period, which is expected to start next March, is not in the bag yet and the risk that the negotiations with Brussels might yet collapse is by no means averted – especially with this divided government.

The UK industrial manufacturing and export figures now published are a burden for UK economic growth. With the already weak start to the year followed by a mere mini-growth of 0.1 percent, the second quarter is unlikely to be much better. The burdens presented by Brexit are now coming more and more to light. We therefore expect muted growth only of one percent for the current year.

 

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