The unexpected growth of the UK

The growth estimates of the British economy have been continuously revised downwards over the past few years. Brexit played the leading role in this economically depressing environment, leading to uncertainty and instability among the UK. To arouse the major concerns, it was the agreements that will have to be taken with the European Union.

A worst-case scenario was predicted by the exclusive BuzzFeedNews, which had access to confidential documents on Brexit, according to which the outcomes of an exit from Europe will be negative and will affect every sector.

The document assessed the three most plausible scenarios on future relations between the UK and the EU. With a free trade agreement, as the one evoked by May in his speech in Florence, British growth would be 5% lower over the next 15 years compared to current forecasts. In the event of failure agree on Brexit, with the United Kingdom being forced to comply with the rules of the World Trade Organization, British growth would be 8% lower in the same period. If the United Kingdom were to maintain access to the EU internal market, in the long run, growth would still be 2% lower than full EU membership. These calculations do not take into account the short-term costs resulting from the exit from the European Union.

In spite of the forecasts above, despite the Brexit and any economic adversity, Britain continues to grow.

According to the new report by the National Institute of Economic and Social Research GDP growth in the UK will be higher than expected, thanks to the synchronized recovery of world economies and the weakness of the pound.

As Jagjit Chadha, director of Niesr explained: “These two factors have helped to rebalance the British economy, which now depends less on domestic demand, has become more oriented towards trade and will continue to do so in the next two years. The contribution that the global recovery has given to Britain has been decisive. In fact, the consumption lack due to the uncertainty linked to Brexit and the decline in disposable income have been more than offset by the relaunch of trade”.

 “Just when we decided to change course with Brexit, the rest of the world gave us a hand – says Chadha-. The growth of the British economy last year and this year has been supported by higher than expected global growth – in 2018 it will probably reach 4 percent”.

The NIESR now predicts that British GDP will grow by almost 2% in 2018 and 2019. Without the recovery of the global economic beyond forecasts, British growth last year would have been 1.2% instead of 1.8%. Inflation is not a problem because it has peaked at 3% at the end of 2017 and will continue to decline this year until it reaches the agreed rate of 2% in 2021.

These optimistic forecasts on the British economy are also due to the agreement between Theresa May’s government and the European Union last December, which unblocked the negotiations on Brexit and “reduced the uncertainty that weighed on companies by holding back investments”, according to Chadha.

NIESR is also optimistic about the final outcome of the negotiations between London and Brussels, despite the tensions of these days and the decision of Prime Minister Theresa May to appease the supporters of Brexit in her party by declaring that Great Britain will not remain in the customs union and will impose restrictions on EU citizens after 2019.

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Silvano Ghigliani

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