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This time, it’s serious

Economists have so far seemed unfazed by Brexit. Some have even proclaimed that it will have no serious impact on the UK economy. But now that the polling booths have opened for the general election, tongues are loosening and voters seem to realise that departure from the EU will affect their daily lives.

First, growth is faltering: the economy expanded by a mere 0.2% in the first three months of this year compared with 0.7% in last quarter of 2016. Set against the broadly optimistic and buoyant context in Europe, these numbers constitute a real decline. The UK is almost bottom of the G7 class, level with Italy and lagging behind France. Drawing on commentary from OECD analysts, the Le Figaro newspaper says the result is partly due to rising prices. The only two sectors still growing strongly are business services and finance. The International Monetary Fund is more upbeat: in April it raised its 2017 growth forecast to 2%.

So far, growth has been one of the main arguments bandied around by ardent Brexiteers. Indeed, the UK economy expanded by 2% in 2016, one of the strongest performances among the word’s rich countries, according to Le Figaro. Which means that the figures are contradictory and that, in some cases, people are reluctant to believe that Britain’s economy and its global financial centre might be badly impacted by Brexit.

Nevertheless, some of the signs can no longer be ignored. Sterling has troughed, particularly against the dollar, purchasing power has contracted noticeably and inflation continues to climb. Taken together, these findings have alarmed British voters and, naturally, investors. With mergers and acquisitions down sharply, the economy’s growth engine has seized up. An excellent article in Le Figaro points out that the business community had not escaped unscathed. A study by the University of East Anglia points to a 15% drop in M&A activity since the Brexit referendum – equivalent to 60 mergers a month.

“This is bad news,” says Peter Ormosi, who led the research. “The vast majority of mergers, unless they have a significant adverse effect on competition, have the potential to contribute to social welfare, for example by reducing transaction costs, or by enhancing the efficiency of the merging businesses”. So Brexit is no longer inconsequential, because it has undermined certainties in an economy that has so far been robust and resourceful. True, the British are famed for their stiff upper lip and their ability to stand up to anything. But although Winston Churchill has regularly been quoted in recent times, it seems that William Shakespeare has waded into the debate.

Christian Moguérou

Sources: Le Figaro Economie, Harvard Business Review, Financial Times, Le Monde, Le Point, Les Echos

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