Does blaming slower growth on the EU referendum just mask deeper problems with the UK economy?
James Sproule, chief economist at the Institute of Directors, says Yes.
Economic data seem to suggest that UK businesses and consumers alike are holding back on long-term commitments as they are worried about the EU referendum. Quite possibly, but this is only part of the story. Economic slowdown is not just affecting the UK, it seems to be a problem for much of the developed world. Northern Europe is on pause, while southern Europe is naturally struggling to do much of anything given the shortage of bank credit. Across the Atlantic, the US Fed is leaving rates on hold (reversing its earlier policy guidance) as it fears that the economy can’t thrive without cheap money. Here is the real problem: just how sustainable is an economic recovery if it depends on what was once described as “extraordinary” monetary policy? The referendum may be causing uncertainty, but elections are a design feature of democracy, not a bug. Imagine how much worse it would be if we were never asked for our opinions.
Ruth Miller, UK economist at Capital Economics, says No.
Recent data have brought more concrete signs that uncertainty ahead of the EU referendum is starting to weigh on the economy. Last week’s GDP figures indicated that the recovery cooled in the first quarter while survey evidence suggests that growth ground almost entirely to a halt in April. Of course, not all of this can be attributed to Brexit fears. Financial market mayhem and global growth concerns at the start of 2016 were probably to blame too. And the energy sector struggles may reflect the impact of lower oil prices. But with stock markets and commodity prices picking up and signs of a rebound in China’s economy, these headwinds seem to be passing. At home, confidence remains high, bank lending is recovering and real earnings growth is still-solid. Granted, Brexit fears could intensify over the coming months. But if the UK voted to stay in the EU, then we should see a bounce back in growth later this year.