The long drawn out Brexit process is inflicting yet more damage on our economy. Even before the data for April were published showing a dramatic 0.4% fall in GDP, the indications were not good. Manufacturing PMIs have been indicating a slowdown in exports, services are sluggish, shoppers have been abandoning the high street and construction output seems to be in reverse.
What has been going on? To a large extent it is the unwinding of serious stockpiling that had pushed up growth in the first quarter to 0.4% in advance of Theresa May’s original March 29 date for leaving the EU. The fear of a hard Brexit and a possible disruption in supplies were behind this. But of course at an enormous cost.
Already in March output fell by 0.1% and as the deadline came and went this accelerated in April. October 31 is a long time to hold on to extra stock. And the deadline may be extended again.
Manufacturing was down a whopping 3.9%. A 24% cut in car production was a major contributor as factories went into a planned temporary shutdown and worldwide demand weakened further. And we have had more announcements of closures in the sector, with the latest one the Ford engine manufacturing plant in Bridgend.
The size of the GDP drop was much bigger than expected. Things should stabilise in future months. And yet there are indications that some firms have now again become so worried because of the hard line adopted by some of the Conservative leadership contestants that they may well start stockpiling again. Not many can afford to do so though for any length of time.
What a cost to the economy. Money that should be diverted to improving innovation and productivity and enhance the UK’s competitiveness is lost in preparations for Brexit, not just for no deal but for other possible outcomes too. It is now increasingly clear that frictionless trade under any Brexit scenario is under serious threat – not just with the EU but with other parts of the world.
Good labour market figures released today may lull one into thinking that all is well. But unemployment is a lagging indicator and it takes a bit of time for the underlying slowdown of the economy to be felt, which it will. The underlying trends suggest a significant slowdown if not contraction in growth once the stockpiling effects are evened out. No wonder the deputy governor of the Bank of England my ex-colleague Dave Ramsden warned in a speech last week that the economy may well grow more slowly than their forecast of 1.6% growth in 2019 and 2.1% in 2020.
The mood seems to be changing radically. In the margins of television interviews on the economy this week I was asked a number of times whether we should be preparing for recession! Certainly some forecasters are beginning to think so.
Project Fear coming true. Too bad that those who should read and digest the news above are not going to do that.