As Brexit talks begin, Europe sees economic upswing over UK
LONDON — When Britain voted to leave the European Union a year ago, proponents argued that the British economy was being held back by the slow-growing, dysfunctional bloc.
A year on, and with the Brexit divorce talks finally starting, the situation is radically different.
Britain’s economy is growing more slowly than Greece’s, its households are getting poorer as inflation rises and the government is struggling to stay in power. The remaining 27 members of the EU, meanwhile, appear to have pushed into a higher gear and found renewed vigor from the election of pro-EU governments like that of France.
“The tables have turned somewhat,” said James Nixon, chief European economist at Oxford Economics. “The European economy is now enjoying a solid upswing and sentiment, especially towards the EU, is improving.”
The situation could embolden the EU negotiators in the Brexit talks, though it is still far from certain how the talks, which are due to last two years, will play out.
Still, it’s a role reversal for Britain, which had been buoyed by strong growth in recent times — even after the momentous vote on June 23, 2016 to leave the EU.
Instead of falling into recession in the wake of the Brexit vote, as many economists had predicted, Britain was last year one of the fastest-growing economy among the Group of Seven industrial nations. That was largely due to the sharp fall in the value of the pound in the wake of the Brexit vote, which made British exports cheaper in international markets.
For the EU, the Brexit vote was another body blow to go with the debt crisis that raised questions over the future of its euro currency and the struggle in dealing with the flow of refugees from Syria.
Since that post-Brexit rebound, things have clearly gotten worse for Britain this year.
Prime Minister Theresa May failed spectacularly to achieve a majority for her Conservative Party in the general election she called for earlier this month, undermining confidence in her ability to remain in the top job.
And the economy started showing signs of worsening.
The 15 percent post-Brexit drop in the pound has pushed up inflation as it makes imports, such as food and energy, more expensive, causing living standards to fall as wage increases fail to keep up pace. The consequence is households are spending less — retail sales haven’t grown at a slower rate in four years.
Uncertainty surrounding the outcome of the Brexit talks, such as the possibility that Britain crashes out of the EU with no trade deal, is also likely to make consumers cautious.
As will the prospect of higher interest rates from the Bank of England, though Governor Mark Carney sought on Tuesday to rein back expectations of any imminent hikes. Expectations of higher borrowing costs had been stoked by the outcome of last week’s policy meeting, which showed that three of eight rate-setters surprisingly backed the first increase in nearly a decade.