Britain’s Office for National Statistics has released its latest economic data. And it’s not good news. In the worst economic performance since 2009, Britain’s economy failed to grow over the past three months.
It’s pretty clear what’s to blame: Uncertainty over Brexit.
Business has no idea whether Brexit will ever happen, and if it does, what form it will take. The data show that while the U.K. service industry is expanding and unemployment is now at a low rate of 3.8%, construction and manufacturing output is contracting. Investment from those industries requires confidence in positive short-medium term economic trends. But where it’s unclear what’s going to happen with Brexit, confidence is in very short supply.
The Bank of England (equivalent of the Federal Reserve) is likely to respond by reducing interest rates at its next meeting. In the meantime, the upcoming British election on Thursday may resolve these issues.
Boris Johnson’s Conservatives, who are favored to win, pledge to ensure Britain’s speedy withdrawal from the European Union. If that legislation is along the lines of the agreement that Johnson recently negotiated, then the economy will find a burst of new confidence. If, however, Johnson wins a very large majority in Parliament, the deal might change. Johnson might even hold out for better terms and threaten a no-deal Brexit if he doesn’t get them. In an actual no-deal scenario, economic confidence will plummet further, at least in the short run, because British businesses, at least in the short term, will be unable to trade effectively with EU member states.
Things get murkier when one considers the alternative election result. If the left-wing Labour Party win power, Brexit is likely to be suspended indefinitely and ultimately canceled. On paper, that looks good for the economy. After all, most businesses and Britain’s economic crown jewel, its financial sector, support canceling Brexit in order to maintain closer trade access and links to the EU. Yet Labour is already deeply anti-business, and many of their supporters are pro-Brexit. This is one reason they aren’t pledging to cancel Brexit, they’re pledging to renegotiate a deal with the EU and then hold another referendum on that deal, or on remaining. So the delays before a referendum took place would add further strain to the British economy.
This is why Conservatives are concluding their campaign with stunts such as those shown below. They want to send the electorate a message: Love Brexit or hate it, only we offer the certainty to move Britain forward.
