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“The recent announcement that the economy shrank in the latest quarter is no surprise", says Professor Nigel Driffield of WBS

Professor Nigel Driffield of Warwick Business School provides his expert comment on the latest UK growth figures:

“The recent announcement that the economy shrank in the latest quarter is no surprise. In the first instance there was a degree of stockpiling in the run up to the previous Brexit date, so there will now be a correction as the stockpiles are used up rather than more stocks purchased.

"However, of greater concern has been the trend in investment since the referendum. Business investment held up reasonably well in the immediate aftermath of the 2016 Referendum (although it was weaker than in other countries and when compared with previous economic expansions in the UK); indeed, there was little evidence of any immediate ‘Brexit effect’. This, though, changed markedly in 2018, with ONS figures showing business investment falling in every quarter of the year. This was the worst performance since the Global Financial Crisis and - outside of recessions - the longest decline on record,

"ONS data illustrates this Use figure 1 here from ONS? (shows decline in 2018):

https://www.ons.gov.uk/economy/grossdomesticproductgdp/articles/businessinvestmentintheuk/analysisbyasset

"The reason that this is such a concern, is that, with the exception of 1929, and briefly 1981, recessions are not caused by more joins being lost, but by insufficient new ones being created. These jobs are reliant on new investment, which is in decline. Not least because of the uncertainty over the nature of Brexit. Politicians seem to believe that this uncertainty will end if they negotiate any form of Brexit, but the harder the Brexit, the less is known about our future trading relationships, and the greater the uncertainty.

"At the same time, we are seeing a decline in new foreign investment – foreign investment is still coming into the UK for acquisition – UK assets are cheap as a result of the depreciation in sterling, but This fall in FDI is critical as the UK economy relies more on FDI than any other G7 country, with FDI bringing employment opportunities, often in areas of high unemployment, such as the North East.”

12 June 2019

Contact:

Tom Frew, Senior Press and Media Relations Manager – University of Warwick:

E: a.t.frew@warwick.ac.uk
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