World Economy

Britain on Cusp of Recession

Britain on Cusp of RecessionBritain on Cusp of Recession

Britain is battling against “spiraling uncertainty” and is now on track to slip into recession by the end of the year, according to the latest forecasts from bankers at Barclays.

In the bank’s latest chart-book of economic indicators for the UK, economists Andrzej Szczepaniak and Fabrice Montagne discuss the path that lays in front of the British economy, Business Insider reported.

One word dominates that discussion: recession.

Barclays expects that the UK will slip into recession by the end of 2016, with growth falling by 0.1%, thanks to the massive uncertainty surrounding Britain after the country voted to leave the European Union in late June.

The Brexit vote caused the pound to crash, and plunged Britain into an unprecedented situation where the country simply doesn’t know what its political or economic future will look like. That uncertainty will bash confidence, stunt investment and generally weaken the economic picture.

As Barclays notes: “We expect that spiraling uncertainty will adversely affect firm and household confidence, forcing them to be more cautious and hold back on spending, following the UK vote to leave the EU at the June 23 referendum.”

The bank continues: “We expect the aforementioned spiraling uncertainty to push the UK economy into recession from H2 2016. We forecast headline GDP growth will average -0.1% q/q in H2 2016 and 2017, primarily due to a marked contraction in fixed investment, which had already been slowing in the run-up to the referendum. We believe it will contract in almost each quarter of our forecast horizon, resulting in an average of -0.5% q/q over H2 16 and 2017.”

  Business Confidence Recedes

Essentially, things look very, very bad for Britain in the post-Brexit world, Barclays said.

It said: British GDP growth was slowing even before the outcome of the referendum. GDP grew just 0.4% in the first quarter of the year, down from 0.6% in the final quarter of 2015. “When we see the first estimates of Q2 GDP, expect them to be even worse.”

Business confidence has tanked since the vote. When businesses lose confidence, they tend to start delaying projects and spending, which in turn helps stunt economic growth.

Not only is business confidence at a low ebb, but Barclays predicts that it will get even worse as uncertainty surrounding the mechanics of the actual Brexit remains.

Sterling is expected to fall further as the Bank of England cuts interest rates on Thursday to zero and expands its bond-buying program, but won’t fall as far as parity with the dollar.

Sterling hit a 31-year low of $1.279 last week, down around 15% since the June 23 referendum.

  Retail Sales Slide

UK retail sales growth slowed to just 0.2% in June, with like-for-like sales dropping 0.5% compared to the same month last year, according to the retail sales monitor survey from the British Retail Consortium and KPMG, ShareCast News reported.

A decline in clothing and shoe sales was the biggest drag on the sector, dragging non-food sales growth to lowest level since April 2012, outweighing improvements in food sales.

Sales slowed in the last week of the month after the June 23 vote to leave the EU, but the BRC argued it was “too early to define this as a trend”.

On a three-month basis, the BRC-KPMG survey found total UK retail sales rose 0.5%, and 1.2% on a 12-month average basis, which is the lowest 12-month average since May 2009.

Food sales increased 0.8% on a three-month basis, the best performance by grocers since March 2015, with the 12-month average remaining positive at 0.1%.

“The surprise result of the referendum appeared to trigger an immediate drop in food and drink spending, which more than offset some modest sales growth earlier in the month,” noted Joanne Denney-Finch, chief executive of IGD.

Non-food sales rose 0.3%, the lowest since April 2012 and taking the 12-month average to 2.1%, its lowest level since June 2013.