Follow us on:   

Can the UK beat the Brexit blues in 2017?
December 29, 2016, 11:36 am

Brexit has continued to divide UK society as Prime Minister Theresa May moves ahead with negotiations to leave the EU [Xinhua]

Brexit has continued to divide UK society as Prime Minister Theresa May moves ahead with negotiations to leave the EU [Xinhua]

The UK economy appears to have hunkered down to beat the adverse effects of Brexit as it moves into 2017.

While it grew at 2.2 per cent in 2016, one of the EU’s most robust and stable economies in the past two years, the forecast for 2017 is a mere 1.2 per cent.

The sterling pound suffered a dramatic plunge against major currencies twice this year although it appeared to rise briefly in late November.

At 1.23 against the dollar, the weakened pound is a boon for tourists who have flocked to the UK, but a curse to importers who have faced sudden currency inflation.

The boost in tourism numbers has partially helped the services sector weather out Brexit and and continue to expand.

This has invariably boosted consumer spending with Christmas and New Year bargains expected to pull in about 5 billion pounds, according to the BBC.

The weakened pound has also helped multinational firms on the FTSE rake in profits and push the index to record highs not seen in 20 months.

This has given the impression that the UK economy has been able to roll with the punches of Brexit in the short term.

And the Confederation of British Industry (CBI), which measures annual employment, is also indicating a rosier-than-previously-expected picture of the jobs market.

A CBI survey of more than 350 business published last week showed that most expect to grow their workforce in 2017, with the bulk of expansion expected in the IT and sciences sectors.

Still, the UK would have overall been better off without Brexit, most industrialists, economists and business leaders say.

A survey of business managers carried out by Chartered Management Institute (CMI) and published in the Independent revealed that 65 per cent believe Brexit will hinder the UK’s economic growth.

However, this figure falls when considering the long-term impact of Brexit; less than 50 per cent say they are pessimistic about the UK’s economic growth.

Nevertheless, the London-based Institute for Public Policy Research (IPPR) found that Brexit impedes development in growth and living standards in the UK for the next 15 years.

“Even as what we do and how we work changes, the UK is likely to remain trapped in a low growth, low interest rate decade driven by demographic shifts, productivity trends, weak investment, weak labour power, high levels of debt, and the headwinds of a slowing global economy,” the IPPR report said.

Economic realities

Since the June 23 referendum, the realities of Brexit have become clearer and as the government of Prime Minister Theresa May heads into 2017 facing the challenges of negotiating the exit from the 28-nation bloc, the impact on the EU and UK economies is likely to come more into focus.

Things are likely to come to a boil in March 2017, the time during which May has promised to “trigger” Article 50 of the EU Constitution that allows for a nation to withdraw from the bloc.

According to the EU’s Article 50, it can take up to two years for a member state asking to withdraw from the Union to finalize negotiations on its exit.

But Article 50 also allows a withdrawn state to apply for readmission into the EU based on the provisions of Article 49. However, a number of European leaders have said there is no road back to the Union and have ruled out renegotiating treaties between the UK and Brussels.

While a member state cannot be forced to initiate Article 50 withdrawal negotiations, European leaders have been pressuring 10 Downing Street to move quickly on the exit.

In the meantime, UK markets will be looking for signs whether Brexit will be ‘hard’ – a complete separation from the EU – or ‘soft’, whereby close ties with the EU are maintained and London continues to have access to the single market system of Europe.

The BRICS Post with inputs from Agencies