Brexit is easing the UK into recession like an old man lowering himself into a hot bath

Bathtub La Clique

LONDON — Ever since the Brexit cliff failed to emerge, Leavers have been celebrating.

The UK economy continued to grow after the referendum vote to exit the EU a year ago. The Remainers were wrong: Apparently, we can have a strong economy without being attached to the EU.

But now, with the first three months of the two-year Article 50 period gone and no concrete progress to show, we’re starting to see economic data that backs up the theory that the Brexit cliff will be more of a gentle, downward slope:

  • Business confidence is in decline.
  • The Purchasing Managers’ Index (PMI), a measure of intended business activity, is trending down.
  • And new car sales are in decline.
  • There is one thing that has gone up: the amount of cash businesses are storing in overseas bank accounts.

These are not good signs for the economy. True, it is not a crisis. But we’re now at risk of the recession engulfing us gradually, like an old man lowering himself into a hot bath, getting used to it as he goes along.

GDP growth was 0.2% quarter-on-quarter in the most recent period. That’s depressingly totemic because 0.2% is the same amount Brexit might cost us. According to the CBI, the extra tariffs on exports to the EU post-Brexit will slice between £4.5 billion and £6 billion annually from UK GDP, or 0.2% to 0.3% per year.

To put it bluntly, does this look like a healthy economy to you?

Pantheon Macroeconomics

Here are the PMIs, which closely track GDP:


None of the individual PMI sectors are trending upward:


And big-ticket consumption is trending down, too. Here’s the chart for new car registrations:


On top of that, businesses are storing capital overseas. Foreign currency is worth more against the pound after all …

Pantheon Macroeconomics

… and you might also get more growth for your money in the EU, which is trending up just as Britain tanks:


Prediction: As we head toward 2019, expect more business leaders to start talking more loudly about the economic cost of unhitching ourselves from our biggest single trade partner.