Yahoo Finance UK growth will dip to 1% even if no-deal Brexit avoided, warns OECD
The UK’s GDP growth rate will slip to 1% next year even if a no-deal Brexit is avoided, according to the Organisation for Economic Development and Cooperation.
The OECD said the economy would slow down from growth of 1.2% this year if parliament passes Boris Johnson’s Brexit deal before the 31 January deadline, before returning to 1.2% in 2021.
However, the OECD also warned that a no-deal departure would significantly damage the economy and leave the UK more exposed to a global downturn.
Earlier this year the OECD said leaving the EU without a deal on 31 October would slice almost 3% from the UK economic growth over three years. Without putting a figure on how much it would cost in lost growth from 2020, it said: “An exit from the EU without an agreed deal would significantly damage the economy, especially if it triggers turbulence in financial markets.”
Referring to the tit-for-tat trade war between the US and China in its twice-yearly health check of the global economy, the OECD said: “The UK economy is also exposed to global financial risks, a further slowdown in the world economy and rising protectionism.”
The warning came as the OECD, which coordinates policies and research for 36 of the world’s richest countries, called for powerful trading nations to calm the war of words over import tariffs and cooperate to reduce trade barriers.
The organisation’s chief economist said while the rates of investment and growth in Britain were especially low, there was also a slowdown across the world economy that bore all the hallmarks of an “entrenched” period of stagnation.
“Our biggest fear is that investment spending persists at the current very low levels,” Laurence Boone said. “Cooperation between nations has to do with restoring stability and establishing a safe platform for investment.”
A failure to develop responses to the climate emergency and policies to cope with the rise of digital commerce were holding back investment as company boardrooms waited to hear what tax and spending policies governments were prepared to adopt.
Global growth was likely to slow to 2.9% this year before stabilising in 2021 and rising back to 3% in 2022, the OECD said.
Boone said the spectre of higher tariffs was also having a chilling effect on investment spending by private companies.
“Tariffs and the uncertainty they create are damaging investment,” she said. “You need to restore some stability to the trading relationship to turn the situation around.”
The US is negotiating a first-phase agreement with China to halt an escalation in a two-year battle over import tariffs between the the world’s largest and second-largest economies.
Donald Trump has hinted that an initial deal could be close but has pulled back on several occasions from signing an agreement.
This week the situation became more confused after the US Senate angered China with a bill aimed at protecting the rights of protesters in Hong Kong.
The proposed legislation, which was passed unanimously and therefore making it difficult for Trump to veto, makes it law for Congress to assess the status of Hong Kong and its charter each year, potentially jeopardising any hope of signing a deal in the near future.
The European Central Bank warned this week that risky borrowing was destabilising the financial system, especially by hedge funds in risky ventures, and they could exacerbate market turmoil if they all rushed to sell illiquid assets at the same time.
The OECD said Britain’s future was particularly uncertain in view of the general election in December.
Figures for business investment in the UK have barely shifted in the past three years, compared with an OECD forecast made before the EU referendum of a rise of more than 20% by this year and an actual 14% average increase over the same time period by France, Germany and the US.
“Leaving the EU may exacerbate these vulnerabilities. By contrast, investment prospects could recover faster should the UK and the EU agree on a future close economic relationship,” it said.
