Almost 100 days since the U.K. voted to leave the European Union, firms are still in the dark. Prime Minister Theresa May has offered little insight into her exit strategy, leaving executives to make decisions on investment and hiring with no clarity on what the business environment might look like, or how easy it will be for the U.K. to continue trading with the bloc of 500 million people.
What is difficult today is the uncertainty. . Such uncertainty looms over an economy that has proven more resilient than anticipated since the June referendum. The U.K. is facing some form of scaled-back relationship with its biggest export market. In the short run, uncertainty can cause some decline in activity, but that’s a separate issue from what will happen in the longer run once we change our relationship with the EU, which I’m much more concerned about. This uncertainty is weighing on prospects for business investment.
It’s not just domestic companies considering their options. German airline Deutsche Lufthansa AG is examining whether it may need to vary frequencies and aircraft types on U.K. routes as demand shifts following the Brexit vote. The central bank, which cut interest rates and restarted its asset-buying program this summer, raised its near-term growth estimates, though it won’t draw inferences for the longer term until it publishes a more detailed analysis on Nov. 3.
The UK used to be the sick man of Europe. Its annual growth in prosperity improved from bottom of the league among the G-7 leading economies before it joined the European Economic Community to top spot in the 43 years after 1973. This does not prove that becoming a member improved Britain’s international performance. It does, however, allow the Remain campaign to argue that membership did not prevent UK national renewal. Economists from the Leave side would point out that the absolute growth rates were lower after 1973 than before and that the main reason for Britain’s improved performance was Margaret Thatcher’s reforms, not EU membership. Expecting the economy to slow more toward the end of the year and maybe next year also. Perhaps the worst is ahead of us, and indeed the uncertainty will effect the economy.