Brexit: the consequences of uncertainty

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The constant delays with Brexit implementation have come to affect the British economy

The Purchasing Managers Index (PMI) of the first month of 2019, published last week, indicated the possibility of stagnation for the British economy. This is due, in large part, to the uncertainty about the Brexit, a situation that coincided with a slowdown in the global economy.

Leer en español: Brexit: las consecuencias de la incertidumbre

Because of these factors, the British services sector, which accounts for almost 80% of UK production, reached the brink of stagnation. According to The Guardian, "Markit's monthly service sector PMI dropped to just 50.1%, showing barely any growth at all".

Apparently, several companies in the sector had to make personnel cuts, because the uncertainty about Brexit has alienated customers. A similar situation occurred in the construction companies in the country. Likewise, last month, car sales dropped by 1.6%.

According to The Guardian, "IHS Markit said its all-sector index – which includes manufacturing, construction and services – fell from 51.5 to 50.3 last month – the second lowest reading since December 2012". As a result of this news, starting this week, the pound sterling lost a penny against the dollar.

The lack of guarantees scares Nissan

For now, the case that most disconcertingly reflects the reluctance to invest in the UK generated by the uncertainty before the Brexit is the case of Nissan. The Japanese automaker scrapped its plans to produce its new X-Trail model in Sunderland, UK, because of uncertainty about Brexit.

The project was transferred to Japan and Gianluca de Ficchy, president of Nissan for Europe, said that "the continued uncertainty around the UK’s future relationship with the EU is not helping companies like ours to plan for the future".

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Opponents to Brexit reacted quickly to the situation. For example, Keir Starmer, spokesman for the Labor Party, said via Twitter: "This represents a serious blow to the communities that depend on the jobs that Nissan creates and supports," because, according to CNN, "the installation of Nissan in Sunderland is the largest automobile factory in the United Kingdom, with more than 7,000 employees".

Also, since Nissan's announcement of a change of plans came just two weeks after Jaguar Land Rover, the largest car manufacturer in the United Kingdom, announced a global reduction in its workforce, Paul Drechsler, President of the Confederation of British Industry, warned that "If we do not have a customs union, there are sectors of manufacturing society in the UK which risk becoming extinct".

How will the Bank of England react?

The Bank of England's monetary policy committee should meet this Thursday to set interest rates. However, the analysts of The Financial Times point out that "under normal circumstances, the tight labor market in the United Kingdom would be a reason to raise interest rates, but the extreme uncertainties of Brexit make it almost impossible to act for now".

Likewise, Paul Dales of the consultancy Capital Economics warns that "the uncertainty about how the United Kingdom will leave the EU has paralyzed the policy".

Some say that the bank should carry out a gradual adjustment to keep inflation at the 2% expected. Other experts point out that a more moderate approach should be taken. Therefore, the analysts point out, it will be the quarterly Inflation Report of the Bank of England that would really allow to know the direction that the economic policies of the country will take against the uncertainty of the Brexit.

LatinAmerican Post | Sofía Carreño

Translated from "Brexit: las consecuencias de la incertidumbre"