Britain’s intensifying political meltdown has thrust the country into the midst of an economic “disaster,” according to a Nobel Prize-winning economist.
British Prime Minister Boris Johnson is currently under immense pressure to deliver Brexit, with 55 days to go before the world’s fifth-largest economy is scheduled to leave the European Union.
It remains a deeply divisive issue in the U.K., more than three years after a small but clear majority voted to leave the bloc.
Ahead of the October 31 Brexit deadline, the country appears poised for range of options, including a snap election, a so-called “no-deal” Brexit scenario and possibly even abandoning the whole process altogether.
“What is happening is a disaster for the economy, looking at it from a purely economic point of view,” Christopher Pissarides, a professor of economics at the London School of Economics (LSE), told CNBC’s Steve Sedgwick at the Ambrosetti Forum in Italy on Friday.
“The country looks ungovernable, we don’t even know who is going to be prime minister next month when the big decision has to be made,” Pissarides said.
What is happening with Brexit?
An alliance of opposition parties and rebel lawmakers from the ruling Conservative party wrested control of the lower house of parliament on Wednesday. The move could force Johnson to seek a three-month delay to Brexit.
Johnson has repeatedly insisted he will not seek to delay Britain’s exit from the EU, saying on Thursday that he would rather be “dead in a ditch” than ask for another deadline extension.
Previously, the prime minister has pledged to deliver Brexit on October 31 “do or die, come what may” even if that means leaving the bloc without a deal in place.
“I cannot see companies investing into new technology and what’s needed now because they don’t know what situation they are going to face,” Pissarides, who was awarded the Nobel Prize in Economics in 2010, said Friday.
What is the economic situation in the UK?
A no-deal Brexit is seen by many inside and outside of parliament as a “cliff-edge” scenario to be avoided at all costs.
Leaving without a deal would mean an abrupt departure from the EU with no transition period allowing businesses to adjust to life outside the bloc.
The Bank of England has reportedly estimated that a disorderly Brexit would probably see the economy shrink by 5.5% —rather than a previous forecast of 8%.
Late last month, a gauge of Britain’s economic health dipped to an almost seven-year low in August.
The European Commission said last week that its Economic Sentiment Indicator (ESI) for the U.K. fell to 92.5 last month, down from 94.3 in July — reaching its lowest level since September 2012.
More recently, a closely-watched survey of industry managers published Wednesday showed Britain’s dominant services sector grew only slightly in August, while the country’s construction and manufacturing sectors shrunk.
The economic data suggested the U.K. economy was at risk of “entering a technical recession next quarter,” Cathal Kennedy, European economist at RBC, said in a research note.
“The survey detail painted a picture of broad weakness,” Kennedy said.
Frontpage January 10, 2020