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Tuesday, February 12, 2019

There is no Brexit dividend

For those who claimed that Brexit would bring unparalleled prosperity and freedom, while all the claims of an economic turndown were just 'project fear', today's news that official figures have confirmed the UK suffered its worst year for GDP growth since 2012 must come as a bit of a shock.

It may certainly be a surprise to the Chancellor of the Exchequer, who has stated that Britain can reap an economic dividend from Theresa May’s Brexit deal. He may well still be poring over the highly critical report by the Treasury select committee which warns that his claims of a “deal dividend” if Britain avoided a no-deal exit lacks credibility, wondering how to spin it in his favour.

As the Guardian reports, the committee's criticism came after data on Monday showed the economy grew by just 0.2% in the final three months of 2018, down from 0.6% in the third quarter. The fourth-quarter figures contained signs of an even sharper slowdown, with the economy posting a decline of 0.4% in December amid signs that Brexit uncertainty is taking hold:

For 2018 as a whole, GDP growth slipped to its lowest since 2012, at 1.4%, down from 1.8% in 2017.

Nicky Morgan MP, the Conservative chair of the committee, said Hammond’s “dividend” claim, at the Conservative party conference last year, had already been undermined by the government’s independent forecaster, the Office for Budget Responsibility. The OBR had told the committee the dividend was not an economic boost so much as “avoiding something really very bad” in the form of a no-deal departure.

“The OBR already assumes an orderly Brexit, so there won’t be a ‘deal dividend’ beyond the forecast just by avoiding no-deal. Business confidence may improve with increased certainty, but it’s not credible to describe this as a dividend,” said Morgan.

The OBR has made a smooth departure from the EU a key part of its forecasts, which prompted the Treasury committee to state there is no evidence of an economic boost from supporting the deal over and above those central estimates.

Hammond has repeatedly suggested that, should parliament throw its weight behind Theresa May’s Brexit plan, it would generate a dual economic boost for the country by lifting the fog of uncertainty blocking businesses investment, while also allowing him to spend public funds held in reserve for a no-deal scenario.

As if to emphasise the closeness of the cliff edge we are hurtling towards, growth figures from the Office for National Statistics revealed that business investment in the final three months of 2018 declined sharply. At the same time corporate spending tumbled for the fourth successive quarter – falling by 1.4% in the final quarter of 2018 alone - for the first time since the 2008 financial crisis.

In addition companies have intensified their contingency planning to cope with the possibility of a disruptive Brexit. Car manufacturers are stockpiling parts, banks have moved employees to Ireland and continental Europe and two Japanese electronics firms, Panasonic and Sony, have moved their EU headquarters to mainland Europe.

The paper also reports that GDP growth in December plunged into reverse, with a broad-based slump across each of the key sectors for the economy. The manufacturing sector, which makes up about a tenth of the economy, fell into recession, with six months of negative growth in the longest negative run since September 2008 to February 2009, the depths of the financial crisis.

And we haven't even left the EU yet.
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