Economic data announced tomorrow are expected to reveal what Brexit critics have feared since the referendum over a year ago: the British economy has slipped into the slow lane, now rivalling Japan and Italy for bottom place in the 2017 G7 growth table.
It will be the first time in a quarter of a century – since 1992 in fact – that it has occupied that particular position and marks a sharp slow-down from the stellar performance of the 2013-2016 period when it occupied first place.
There is, of course, basically one reason for it: the uncertainty and bickering surrounding the Brexit negotiations and the weakness of the Conservative government under Theresa May, the country’s increasingly hapless prime minister who appears out of her depth.
The figures are generally expected to record growth in GDP of 0.3 per cent in the third quarter, which is pretty much in line with the previous two quarters, suggesting the economy is heading for growth of 1.2 per cent in 2017. That is a deeply disappointing performance compared to the world economy which, according to the IMF, is enjoying its strongest growth since 2011. More worrying for the long-term, investment has fallen for the first time since 2009.
All three of the big economic regions that drive the global economy, the US, Europe and Asia, are growing strongly and even Japan is showing signs of stirring itself following Shinzo Abe’s landslide election win over the weekend. The Nikkei 225 share index seems to think so with a record 15 successive sessions of rising prices. It still has an awful lot of ground to make up: at its peak on New Year’s eve 1989, the Nikkei stood at 39,000. Today, after nearly 30 years averaging 1 per cent economic growth, it has just edged above 22,000, its highest level in 10 years.
The London stock market has been hitting new highs. too. but it is not being matched by the economic performance. The latest figures are expected to show that British growth has now halved from its three-year run between 2014 and 2016, reversing its position as the strongest performing major economy in the EU, from “hero to zero” in just 15 months.
The economic consequences of the Brexit vote are becoming more visible by the day, reflecting the growing uncertainty about the long-term position of Britain in the post-Brexit world. The government says the country will be formally outside the European single market and customs union, which means it will have to negotiate new terms of trade with its EU trading partners, which take more than 40 per cent of UK exports. But trade negotiations have not even started yet and may not get going until well into next year, two years after the Brexit vote.
Business hates uncertainty and there has not been so much of it around since the 1970s. In recent days the prospect of Britain leaving the EU with “no deal” has become a real possibility, spreading serious alarm through the business community, which sees that as the worst possible outcome. Almost any deal, even a bad one, would be better than no deal at all. But a “no deal” result is now being openly discussed by Mrs May’s most senior ministers who are mostly at odds with each other - further deepening the uncertainty.
The impact of the Brexit vote has already been seen on the pound and inflation, with last week’s retail figures showing just how much rising prices are squeezing the consumer. Inflation is running at over 3 per cent, pushed up by rising import prices, particularly food, while wages are rising at less than half that. The growth in consumer spending, the engine of the economy, is at its lowest level for four years. Economists are forecasting at least one more year of high inflation and low wage growth, which will inevitably feed into the wider economy. An added blow would be an increase in interest rates in November, which looks increasingly likely given the inflation figures.
The impact of Brexit can also be seen in the City where many banks and other financial institutions have put in place their contingency plans for a “no deal” post-Brexit world and the movement of staff to other European capitals has begun. So far it is a trickle but Dublin, for example, is seeing a sharp rise in house prices as a result of previously London-based bankers moving there. The tipping point has not yet been reached when the trickle becomes a serious outflow of financial operations but there is no question that the agonisingly slow progress is weighing heavily in City boardrooms.
For almost a year after the Brexit vote, the economy seemed to defy gravity and kept on growing. But the reality has arrived and it is difficult to see what pulls it out of the slump it is descending into.
The Brexiteers are still looking to new trade deals, less red tape and much greater autonomy to drive Britain bravely into the new future. The prospects of that happening look more slender by the day.