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A long wait for Brexit clarity

The economy will continue to expand, despite Brexit uncertainties, one of the UK’s leading economists has told more than 150 of the South’s businesses at a special seminar at Southampton’s Hilton Ageas. But it is likely to be another two years at the earliest before the shape of the post-Brexit landscape becomes apparent.

Five months on from the referendum, challenges and opportunities for the business sector are starting to emerge, according to Mark Berrisford-Smith, Head of Economics at HSBC, presenting a seminar organised by the bank and Rothmans, one of the South’s largest independent accountancy firms.

He told businesses that the economy had been resilient since the referendum, with economic growth for the whole of 2016 likely to come in at just over 2% - the same as in 2015. The outlook for 2017 is for growth to slow to under 1%, with the inflation rate peaking at 3.6%. Faster price rises will eat into peoples’ spending power, so that the pace of consumer spending growth will slow. But he does not predict that the UK will suffer a recession, or come anywhere close.

The other factor driving the economic slowdown is an anticipated downturn in business investment, driven by uncertainty over the UK’s post-Brexit trading relationship with the EU.

The pound’s exchange rate will be particularly important in determining how much inflation accelerates and hence the severity of the economic slowdown. The recent depreciation is great news for many exporters, but is putting pressure on many supply chains as importers, distributors, and retailers work out to what extent, and how quickly, higher prices are passed on to final customers.

The rate of inflation should start to fall back during 2018, which should then clear the way for an economic revival the following year. But whether that can happen will depend on the Brexit process. There will be some high-risk moments during the second half of 2018 and into 2019 which could dent business and consumer confidence and trigger fresh bouts of volatility in the currency and stock markets.

The challenge for the government will be to forge new trading links with non-EU countries without jeopardizing existing relationships. Currently, 45% of the UK’s exports go to the EU, and proximity will always be an important factor in shaping cross-border trade. He also stressed that new deals should encompass trade in services. The UK is the world’s second largest exporter of services, so it is important that new accords play to the UK’s strength.

Rothmans Partner, Andrew Bennett, said, “We were delighted that so many of the South’s businesses attended this timely seminar. This was an opportunity to gain invaluable insight and market intelligence from a leading economic expert on what Brexit will mean for UK business and particularly the South’s business community.

“The seminar was one of a number of events held by Rothmans annually to support businesses in the South. These include an expert view of how the spring budget proposals will impact them, and an annual business leaders lecture from top names in British industry.”

Rothmans Seminar

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