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Brexit: the threat of a "no deal" weakens the outlook for the UK economy


Unemployment remains low, but investment slowed in anticipation of EU exit.

Subscribers article

Near Broughton, Wales, at the Airbus wings manufacturing site, in 2016. OLI SCARFF / AFP

Slowly, without a spectacular crisis, the engine of the British economy is stalling. More than three years after the referendum, and while the uncertainty surrounding the Brexit remains total, economic signals pass one after another to orange, and red for some. In the second quarter, growth was negative (-0.2%). In the third quarter, it should be slightly positive, narrowly avoiding the recession in the United Kingdom.

The pound sterling, a veritable barometer of the Brexit negotiations, which is nearing its all-time low in two months, once again stumbled on Monday (July 2nd). Against the euro, it is ironed under the bar of 1.10.

On Monday, the UK Manufacturing Purchasing Managers PMI fell to its lowest level in seven years. He is 47.4 points, knowing that a level lower than 50 points indicates a contraction. Large decreases in orders were recorded at all levels: consumers, intermediate goods and capital goods. The optimism of the bosses surveyed on their order books is also at its lowest for seven years.

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Brexit does not explain everything. The trade war between China and the United States caused a worldwide slowdown, which affects all of Europe. Germany is nearing the recession. But the uncertainty surrounding the exit of the European Union aggravates a difficult international situation.

Fall of the pound sterling

If the Brexit has not yet taken place, its effects are already felt on two levels. First, there is the fall of the pound sterling, which has lost nearly 15% of its pre-referendum level. This caused inflation in the first year, nibbling the purchasing power of the British. The phenomenon is now resorbed.

The second effect, which is felt more and more heavily, is the sharp slowdown in investment. In the face of uncertainty, companies are pushing back their strategic decisions. The longer they wait, the more these investments end up being canceled and go elsewhere.

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The automotive industry is the most obvious example. In 2015, the sector had invested 2.5 billion pounds (2.8 billion euros) in the United Kingdom. Since then, it has plummeted: 1.6 billion pounds in 2016, 1.1 billion in 2017, 0.6 billion in 2018, and ... 0.09 billion in the first six months of the year. "The investments are in fact stopped", notes, helplessly, the SMMT, the organization representing the British automotive sector.

Source: lemonde

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