Brexit uncertainty clouds Britain’s economic outlook, says Bank J Safra

The hovering uncertainty over Brexit is expected to cloud Britain’s economic outlook, according to a recent report by Bank J Safra. With a bit more than 16 months before official withdrawal from the EU, a timeline reaffirmed this week by British PM May, negotiations about the divorce remain at an impasse.

Latest forecasts show the British economy to decelerate from 1.5 percent GDP growth in 2017 to 1.3 percent in 2018 and 1.2 percent in 2019. The EU Commission takes an even starker view, projecting 2019 growth at 1.1 percent vs. 1.9 percent for the Eurozone. The main reason for the modest performance is the loss of momentum in consumption and investment, as well as a broadening of the trade deficit.

"We expect inflation to remain above 2 percent for the next two years, a view shared by the European Commission. The currency depreciation may have helped to support tourism, as reflected by the positive retail sales data seen in the summer, but it is weighing on the domestic consumer, as clearly shown by the soaring sentiments," the report said.

Furthermore, and unlike consumption, manufacturing output appears to receive some benefit from the depreciation of the pound. Production has rebounded from the setbacks of a few months ago, it yet remains fairly volatile. On the other hand, the construction sector is under some pressure.

These more pessimistic views are not entirely shared by the Bank of England, which expects growth to reaccelerate to 1.7 percent in 2018 and 2019 – a view that is deemed as too optimistic. Nonetheless, even the central bank appears to agree on the outlook for higher inflation (2.4 percent in 2018 and 2.2 percent in 2019), which partly explains the decision to hike rates in November.

At the opposite extreme, there could be an agreement for an orderly transition and a lasting partnership that will cover trade in goods and services, as well as pass-porting for financial companies and immigration from and to the EU. In this case, the likely outcome would lift expectations for growth, and to cushion the country from some of the negative effects.

Meanwhile, caught in in a tussle is the British government, under severe pressure from multiple fronts, and the European governments, also struggling to unify behind common positions.

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