The Spring Statement has been delivered the lunchtime after the Prime Minister’s Brexit Withdrawal Bill had been defeated by 149 votes. With the future of the UK’s trading links uncertain, the Spring Statement delivered today has had a provisional air with a range of commitments contingent on Brexit developments. This is understandable.

 

But what is less understandable is the Treasury’s and the OBR’s complacency about economic developments. Since last Autumn, the clouds have not only darkened over Brexit but also the international economy. World air freight (tonnes kilometres) in January 2019 was down 1.8% year on year. China’s imports from its main trading partners (we follow closely Japan, Korea, Singapore and Australia) have plateaued or trended down since about May last year. World monetary data is weak. According to the Asia Times, China’s second largest property developer Evergrande has just cut the prices of all its houses by 10% and of its office space by 20% to push sales and realise cash. Germany avoided a technical recession in Q4 by the skin of its teeth with 0.0% ‘growth’. The US non-farm payroll jobs figures for February showed one of the three smallest monthly rises in the past 5 years.

 

UK GDP is currently being boosted by pre-Brexit stockpiling but even so is unlikely to achieve more than 0.3% growth in the current quarter. Depending on the timing of the Brexit resolution, much of the rest of 2019 could be affected by destocking. John Lewis Partnership sales are down 1.6% in cash terms for the first 6 weeks of its trading year so it doesn’t look as if the consumer is going to be in a spending mood this year. Fixed investment is falling partly because of Brexit.

 

Cebr has described the economic outlook for 2019 for the UK as ‘somewhere between bad and awful’. With Brexit uncertainty likely to continue for longer than previously thought, any GDP growth this year is likely to be minimal. We have assumed 0.5% in the chart opposite but the number could be much worse if confidence collapses or the world economy goes into a tailspin.

 

A resolution of Brexit is the priority for whoever is Prime Minister in the coming months. Our view is that the so-called ‘extreme’ options of cancelling Brexit or leaving without a deal would be less damaging (at least over a three year period) than allowing uncertainty to continue.

 

Meanwhile, both the Bank and the Treasury need to wake up to the severe risks now surrounding the world economy. With monetary weapons largely used up, a stimulatory package of tax cuts and spending measures is likely to be required in the UK whatever the Brexit outcome.

 

Meanwhile, for those in business, now is the time to batten down the hatches.

 

 

 

 

 

 

 

 

 

 

 

 

Contact:  Douglas McWilliams dmcwilliams@cebr.com

07710 083 652