The Brexit has still not been completed, but is already leaving its mark on the British economy. In the second quarter of this year, economic output in the UK shrank by 0.2% compared with the first quarter of the year – the first decline since the end of 2012. The manufacturing sector had a major braking effect, with production falling by almost 2.5% and thus falling more sharply than at any time since the financial crisis of 2008/09. The service sector, which is important for the British economy, only stagnated during the three spring months, while the financial industry continued to shrink.
It is not yet the trade barriers themselves that are weighing on British growth. They would be expected in the event of Britain’s unregulated exit from the EU – which has become more likely again since Boris Johnson took office – and would, in our view, plunge the British economy into a deep recession. At present they are „only“ distortions: Setbacks after the significant pull-forward effects in the first quarter, when the British built up high inventories before the original Brexit date, as they expected supply bottlenecks in the event of a „no deal“ break. This turnaround is particularly evident in imports, which rose by more than 10% in the first quarter and fell by more than 12% in the following quarter.
For the time being, however, the British economy is unlikely to enter a recession, and a further downturn in the current quarter is unlikely – if only because some carmakers, which as a precaution had brought their factory holidays forward to April, are now continuing production unscheduled during the summer. Inventories should also be gradually replenished before the next Brexit deadline on 31 October.
Nevertheless, growth in the UK as a whole remains subdued. This is because the Brexit perspective has already cost the country growth. Investment activity has been stagnating for more than a year now, and consumers are no longer paying as much back as they used to. According to our estimates, the British economy has already lost around 1% of its growth. Assuming that chaos brexite is avoided, we continue to expect economic growth of around 1% this year and next.