Running down the Brexit clock makes sense for politicians seeking to manage party divisions. But it amounts to economic vandalism for UK households.
Today we learned that economic growth slowed significantly at the end of 2018, with GDP only growing by 0.2 per cent in the last three months of the year. This is around a third of the pre-crisis average rate. In December alone, the economy contracted by 0.4 per cent, with the manufacturing sector now having contracted for the last six months.
Given the slowing of global growth and heightened Brexit uncertainties, it’s unsurprising that our economy is not growing faster. But beyond our growth outlook, what’s happening to the UK’s economy deserves greater attention. Because while politicians endlessly debate Brexit, family finances are being affected in the here and now.
Weaker growth in the fourth quarter of 2018 follows a general growth slowdown since the referendum in 2016. This isn’t the recession that some unwisely predicted; rather, it’s the slow burn of an economy where productivity growth has been lower than expected. The result is that our economy is now 1.2 per cent smaller today than the OBR projected it would be before the referendum. That percentage amounts to £24 billion or £800 a year for every household in the UK. The Bank of England thinks the GDP hit is nearer 1.5 per cent, while other research finds a slightly bigger effect.
But the fact that we’re doing less well at producing stuff than expected isn’t the end of the story. In fact, household incomes have taken a much bigger hit than GDP over the past two and a half years. That’s because they have faced a second headwind: prices rising faster in shops than had been anticipated. This is the result of the tanking of Sterling pushing up import prices and ultimately the costs of consumer products. Putting these (low) growth and (high) inflation trends together, new Resolution Foundation research finds that real household incomes are a very worrying £1,500 lower than they were expected to be, according to pre-referendum forecasts, and despite employment continuing to reach new record highs.
If that’s not enough to remind politicians on all sides of how high the stakes are, I don’t know what is.
Now, of course, no one can say definitively what impact Brexit itself has had – or whether it was the key driver behind the £1,500 underperformance in household income. But it’s difficult not to conclude that Brexit has been the single biggest driver of this economic malaise – not least because of the role that higher inflation has played.
Yes, there has been a recent slowdown in other countries, too: notably Italy, Japan and China. But the UK’s underperformance predates this trend. And during the post-referendum period as a whole, the global economy has actually done better than expected. Taking these factors into account, British household incomes are actually more like £2,000 worse off today, compared to a situation where they had grown in line …read more
Source:: New Statesman