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    Friday, July 22, 2016

    UK Economy Contracting Rapidly As Recession Likelihood Increases

    It looks like the economy over in the UK is already starting to deteriorate pretty badly after its vote to leave the EU. The Purchasing Managers Index (PMI), an indicator of future growth, fell by the greatest amount in the history of the survey and reached its lowest level since the height of the great recession in 2009. Although indicators of export activity were up due to the tremendous drop in the pound, most other indicators are showing around an annualized 1.5% reduction in growth. The probability of a recession within the next year has skyrocketed from around 10% in January to close to 40% today. The Bank of England seems to be getting prepared for a rate-cut and Theresa May, having already thrown the Cameron/Osborne austerity plan out the window, might have to consider additional fiscal stimulus to keep the economy afloat. If business is already reacting this poorly to the uncertainty caused by the Brexit vote, I doubt May has a lot more time left to postpone invoking Article 50 and starting negotiations.  May and her Brexit negotiator Davis have indicated that the separation process would not begin until next year, giving her time to possibly work something out with Scotland and Northern Ireland before negotiations actually begin. And, despite Merkel's apparent willingness to wait, there are other European leaders who would prefer to move sooner rather than later. As the UK economy slips closer to or even into recession in the next few months, the pressure on May to remove the uncertainty and begin negotiations will increase.

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