Brexit delay ‘will keep stranglehold on economy’
Delaying Brexit will consign Britain’s already weak economy to “sluggish” growth and risks a further manufacturing exodus until a deal is struck, a former Bank of England rate-setter has warned.
Ian McCafferty - who sat on the Bank’s Monetary Policy Committee (MPC) for six years until last August said that if the EU approves a delay to Article 50 with no clear plan for a deal at the end, the uncertainty will wreak further havoc on the economy.
He said the sharper than-expected slowdown in business investment, which was largely behind the weak growth of 0.2% in Q4, 2018, would continue as firms halt large-scale strategic investments.
In a sobering take on the prospects for the economy, he said small suppliers face the threat of going out of business if large manufacturers start ditching the UK in droves amid political dithering.
“A longer-term delay would continue the issue of business uncertainty and lack of confidence,” he said .
“It would probably continue to see the economy grow very sluggishly.”
He added that large firms will be increasingly forced to put contingency plans into place, which may mean more moves to shift production and operations out of the UK.
“The longer the uncertainty continues, the more it’s clear that businesses are finding it difficult simply to wait,” he said.
Mr McCafferty, who joined Oxford Economics as senior adviser last month, said even if a delay of a year or two was accompanied by the prospect of a better Brexit outcome at the end, there would still not be an immediate bounce back in the economy.
Businesses want to see firm details of trading relationships before committing to investment, he said.
“Until the degree of uncertainty is properly resolved and there is much greater clarity on the future of the trading relationship, I’m not sure we’ll see business confidence and business investment rallying dramatically,” he cautioned.
His comments come ahead of the Bank of England’s MPC meeting on Thursday, when it is expected to keep interest rates firmly on hold at 0.75% amid the Brexit maelstrom.