The British economy is already approaching the recession due to Brexit

The British economy is already approaching the recession due to Brexit

03/08/2016 source “Expansión”

The UK approaches increasingly the spectre of economic recession. The three main sectors of the British economy (services, industry and construction) made in July a severe braking as a result of Brexit victory in the referendum of last June 23.

Chris Williamson, chief economist at Markit, said that “although it is too early, the monthly decline of all sectors increases the chances that the British economy suffers a soft recession.” According to the forecasts of the British firm, the British GDP will fall about 0,4% in the third quarter, a pace not seen since 2009.

The most worrying data came yesterday from the services sector, the most important of the national economy with 80% of the UK GDP. The activity suffered the biggest contraction in seven years falling to 47,7 points of the PMI purchasing index. Any reading below 50 points indicates recession.

The industry, the second national economic sector, also seen the requests froze in the weeks after the Brexit. If the preliminary data advanced the negative effect of the vote, the final report, released last Monday, confirmed that industrial activity falls at the highest rate since the beginning of 2013. The PMI of this sector fell in July to 48,2 points from the 52,4 recorded last month.

For its part, the analysts Capital Economics try to make a positive reading within the context of negative references: “there are other references that are not so pessimistic”. “It is possible that this data reflects the initial effect of the outcome of the vote, as the surveys were conducted in the first weeks after the referendum,” they say.

The construction sector, the third most important sector for the British GDP, also failed to escape the braking caused by the uncertainty of Brexit: its activity fell last month to the higher level in over seven years.

“It is clear we face a period of mediocre growth, which sharply contrasts with the previous expansive trend that we enjoy in the last three years,” warns Dean Turner, economist at UBS.

The Bank of England, chaired by Mark Carney, celebrates today the meeting on monetary policy with this battery of negative data on the table. The organization decided at the last meeting in July to delay monetary stimulus, waiting to collect more economic data on the real impact of the outcome of the referendum. Now, after these disappointing results, increases the pressure on the central bank to act now.

And before the severity of the impact of the Brexit over the economy, analysts estimate that the BoE will set in motion a broader stimulus package, likely to include the resumption of purchases program of bonds titles and new liquidity auctions.

The UK GDP grew by 0,6% in the second quarter, according to first official estimations published by the British statistics. It is true that the data exceeded market forecasts, but barely gathered the impact of the vote since it celebrated the last week of June. The second estimate will be published on the 26th of August.