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Business / Finance / Markets / Money

Comparative Performance of the UK Economy

Comparative Performance of the UK Economy

There was no recession after Brexit. But a slowdown looks like it’s here now…

Figure 1: Log real GDP for France (blue), UK (bold red), Germany (green), US (bold black), and euro area (teal), all normalized to 2016Q2. Source: OECD, BEA, author’s calculations.

Notice that the UK has continued to grow (except with an essential stall in 2018Q1), but output has lagged other major economies. (Another depiction, comparing to G7 countries, is provided by Laurent Ferrara.)

UK GDP growth has lagged its neighbors, even with a depreciated currency. Note however that the Baker, Bloom and Davis index of economic policy uncertainty remains elevated relative to the pre-Brexit average.

Figure 2: Graph 1, Quarter on quarter SAAR growth rate of real UK GDP; Graph 2, Log real trade weighted UK pound, 2010=0; UK Economic Policy Uncertainty index. Horizontal red line is pre-Brexit average. Source: OECD, BIS, Baker, Bloom and Davis, and author’s calculations.

An interesting question is how much of the slowdown is the negative shock of diminished prospects (higher input costs, shrunken export markets, exit of financial services), and how much due to higher economic uncertainty. A review of the macro impact of uncertainty is contained in Ferrara, Lhuissier, Trippier (2017).

What about longer term prospects? Relative to baseline, most estimates are negative, as noted in the (leaked) Cross Whitehall briefing’s preliminary estimates.

All something to consider as the US contemplates exiting from NAFTA, i.e., Nexit…

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