Could a ‘Brexit bounce’ really rescue the UK’s struggling economy?

Stockpiling has resulted in some extra economic activity ahead of Brexit as companies produce or import more in order to ensure that they are ready for anticipated disruption.

But clearly this is a short-term boost that cannot continue after Britain leaves the EU. It will likely result in a corresponding dip after the eventual departure date as companies slow down production while they run down the stocks they’ve built up.

Some have suggested that this will result in a mini-recession as the UK’s already slow rate of economic growth tips into a decline.

However, is there a possibility that such an effect would be more than offset by companies who feel finally able to turn on the taps of investment after more than three years of uncertainty?

Could the fabled “Brexit bounce” or a “deal dividend” really rescue the UK’s struggling economy?

It is certainly the case that companies have held back billions of pounds of investment in new offices, factories, machinery, training and technology since the June 2016 referendum. The exact amount is hard to quantify but the available data points to a significant sum.

With consumers for the large part continuing to spend despite uncertainty and meagre wage increases, it has been a lack of business investment that has been largely responsible for holding back growth to the tune of around £800m a week – £40bn a year – since the vote.

This makes sense. Many consumer decisions are small scale and have so far, apart from the effects of higher inflation, have been largely unaffected by the vagaries of trade deals.

Norway-plus, Canada-plus, no deal or the Swiss option matters little to most people when weighing up options for a new washing machine or doing their weekly shop

But the differences between the possible trade deal outcomes could be huge for a company looking at a multimillion-pound investment in the UK that will pay off (or not) over several years. As a result, firms have understandably not made those decisions, or have chosen to invest elsewhere.

The flip side of this, so the argument goes, is that when executives and small business owners are given certainty as to what our trading relationship with the EU will look like, the floodgates will open and billions of pounds of pent-up investment will gush forth.

Sadly it is not as simple as this.

According to Bank of England interest-rate setter Jonathan Haskel, British business investment will probably stay weak for the next few years because uncertainty is likely to continue, at least for the 21-month transition period and potentially beyond.

“The longer-term question is whether investment will eventually bounce back after uncertainty is resolved,” he said, adding that the answer to this depends on the perennial, unanswered question of what trade deal is to be struck and how high trade barriers will be.

“At least for the next few years the prospect of low investment seems possible.”

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