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Economy weathering Brexit uncertainty, says ICAEW

The UK economy is proving to be more resilient to Brexit uncertainty than expected, according to ICAEW

Despite the burden of continued doubt caused by Brexit weighing on UK businesses and consumers, “it need not be too damaging to the overall economy”.

In its latest Economic Forecast, ICAEW predicts that growth will increase from 1.3% to 1.5%. It is more optimistic because pay growth is continuing to outstrip inflation, unemployment is forecast to remain very low and fiscal austerity is being relaxed.

“There is no doubt that heightened Brexit-related uncertainty is weighing on business sentiment. Household and company spending and saving decisions are influenced by expectations of the future economic situation. But as long as a no-deal Brexit is avoided, history suggests that the current ‘new normal’ of elevated uncertainty may not impact as much as some expect,” said Michael Izza, ICAEW chief executive.

“Of course, cuts in investment by some businesses in response to uncertainty are unlikely to be reversed, even once the UK’s departure from the EU has been resolved. But if policymakers remain on the ball, the overall macroeconomic effect of the Brexit limbo businesses currently find themselves in should be manageable.”

No deal Brexit preparations resulted in faster growth in Q1 – a 0.5% compared to the previous quarter’s 0.2% rise. Business investment also saw 0.5% rise in Q1 after falling in each quarter of 2018.

ICAEW predicts unemployment will remain low while pay growth stabilises. An unemployment rate of 3.8% in the first quarter of 2019 represented a near-45 year low.

However, ICAEW warns that it is “very clear” that heightened Brexit-related uncertainty is weighing on business sentiment but that outside business investment the real economic impact of periods of elevated political uncertainty is hard to identify.

By Raymond Doherty

Source: Economia