UK could lose £400 billion as result of ‘hard Brexit’, study suggests

A ‘hard Brexit’ could cost the UK up to £400 billion by 2030, a study carried out by Rabobank has suggested.

18% of Gross Domestic Product (GDP) growth could be lost by 2030 if the UK leaves the EU without a trade agreement. The study also suggested that British residents could be out of pocket to the tune of £11,500 as a result of a hard Brexit.

The bank analysed the consequences of three separate Brexit scenarios, including where Britain leaves the EU with a trade agreement, where it leaves without a trade agreement and where it obtains a so-called ‘soft Brexit’ and leaves the Single Market, but not the customs union.

If the UK leaves the EU without a trade deal in 2019, Britain could enter a two-year recession, and GDP would fall to 2.4%, Rabobank suggested.

However, a recession would be inevitable. If Britain leaves with an agreement, or experiences a soft Brexit, then a ‘milder and much more short-lived’ recession would take place.

Hugo Erken, Senior Economist at Rabobank, commented: ‘By looking at dynamics such as innovation, competition, knowledge and human capital, how they will change and what effects this will have on the structural makeup of the UK and European economy, our research shows that the long-lasting impact of Brexit is likely to be more severe than initially anticipated.’

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Significant rise in number of personal insolvencies, official data shows

Data published by the Insolvency Service has revealed that the number of people applying for insolvency has risen to its highest level in nearly three years.

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During the first three months of 2017, personal insolvencies in England and Wales totalled 24,531 – a rise of 6.7% when compared to the previous quarter. This also represents the highest number of personal insolvencies since 2014.

Meanwhile, there were 2,513 personal insolvencies in Scotland during the first quarter of this year. This was 11.0% higher when compared to the same quarter in 2016.

Adrian Hyde, President of insolvency and restructuring trade body R3, commented: ‘Although borrowing rates remain at record lows, rising inflation and slowing real wage growth will be limiting people’s financial room for manoeuvre.

‘Compared with where insolvency numbers were a few years ago, personal insolvency rates are still low and the recent bankruptcy rises have been very small. However, a continued gradual upwards shift may be a sign that the post-recession return of high levels of consumer borrowing and spending is starting to reach its limits.’

UK workers’ wages ‘fell by 1% per year’ following financial crisis, TUC suggests

Wages for workers in the UK fell drastically following the 2008 financial crisis, research from the Trades Union Congress (TUC) has suggested.

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The TUC’s analysis of International Labour Organisation (ILO) figures outlined that, from 2008 to 2015, UK real wages fell by 1% a year.

As a result, the UK ranks 103rd out of 112 countries for wage growth during the post-recession period. The business group warned that this ranking is unlikely to improve any time soon.

Wages for German workers, however, rose by 0.9% per year during the period, while wages for workers in France rose by 0.6%, the analysis revealed.

The data also showed that average wage growth across all countries was 2.3%. The median was 1.6%.

Frances O’Grady, General Secretary of the TUC, commented: ‘UK workers suffered one of the worst pay squeezes in the world after the financial crash. And with food prices and household bills shooting up again, another living standards crisis is a real danger.’

Services sector continues to recover, according to latest PMI figures

The services sector, which accounts for nearly three-quarters of the UK economy, shows continued signs of recovery, according to the latest Markit/CIPS Purchasing Managers’ Index (PMI) survey.

The index stood at 52.6 in September, down from August’s 52.9, but still above the 50 level which indicates expansion. It had shown a steep drop to 47.7 in July following the Brexit vote, but recovered the following month, and has remained positive since.

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The PMI figures are calculated by surveying selected purchasing professionals and business owners across a range of companies. The PMI for the manufacturing sector was recently recorded at 55.4 – its highest level for two years.

Markit’s Chief Business Economist, Chris Williamson, said: ‘The survey results suggest that the economy has regained modest growth momentum since the EU referendum, with especially strong growth appearing in manufacturing.

‘The risk of recession in the second half of 2016 has therefore all but evaporated, and the solid PMI readings for September will cast doubt on the need for any further stimulus from the Bank of England in coming months.’

Earlier this week, the International Monetary Fund (IMF) predicted that the UK economy would grow by 1.8% in 2016, which would make it the fastest-growing G7 economy this year – although the IMF repeated its warning that the UK’s decision to leave the EU was likely to have a negative impact on long-term growth.

UK interest rates cut to record low

The Bank of England (BoE) has cut UK interest rates from 0.5% to 0.25% – the lowest level in the Bank’s 322-year history.

All nine members of the BoE’s Monetary Policy Committee (MPC) unanimously backed the cut, which is the first since 2009.

Upon the news, the pound fell sharply against the euro and the dollar.

The decision to reduce interest rates came in response to fears that the UK could be slipping into recession following the recent vote to leave the EU.

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Mark Carney, Governor of the BoE, vowed to take ‘whatever action is necessary’ to achieve financial stability, commenting: ‘By acting early and comprehensively, the MPC can reduce uncertainty, bolster confidence, blunt the slowdown and support the necessary adjustments in the UK economy.’

Mr Carney also indicated that interest rates could be cut even further if the economy worsens.

Business groups have given their reactions in the wake of the decision to cut the base rate.

Rain Newton-Smith, Chief Economist at the Confederation of British Industry (CBI), commented: ‘With interest rates once again at record lows, expansionary fiscal policy can do more to shore up business and consumer confidence, and put the UK on a stronger growth path for the future.’

Meanwhile, Dr Adam Marshall, Acting Director General of the British Chambers of Commerce (BCC), stated: ‘The BoE’s unsurprising decision to cut interest rates reflects an increasingly uncertain outlook for the UK economy as the new Government begins to look at our changing relationship with the EU.

‘What businesses want is low, stable interest rates for the foreseeable future, which will enable them to make their own growth and expansion plans with confidence.’

Young workers’ income ‘still below pre-recession levels’

The income levels of those aged between 22 and 30 are still 7% below the figures recorded before the recession in 2007/08, new data from the Institute for Fiscal Studies (IFS) has revealed.

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However, the IFS also reported that median income for this group has risen by 4.5% in the last two years as a result of the labour market recovery.

Across the labour market overall, incomes rose, on average, by 2% in real terms between 2007/08 and 2014/15.

Additionally, the data suggests that those aged between 31 and 59 have experienced no change in income levels since the financial crisis.

The research also revealed that pensioners are the least likely group to experience income poverty: median income for individuals aged 60 and above is currently 11% above its 2007/08 level.

Damian Green, the new Work and Pensions Secretary, stated that wages have been rising faster than inflation, but acknowledged that more must be done to increase income levels.

He commented: ‘As our economy grows, we will also be building our skills base, developing a proper industrial strategy and improving education to help everyone reach their full potential’.

Small business confidence ‘reaches four-year low’

Confidence has fallen among the UK’s small businesses, a recent survey from the Federation of Small Businesses (FSB) has revealed.

The report suggests that small business confidence has reached its lowest level in four years, sparking fears over a possible recession.

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More than half of the respondents reported that their operating costs had increased in the past three months, while taxation was also a key factor contributing to increased costs.

Commenting on the report, FSB chairman Mike Cherry said: ‘To head this off, we need to do everything we can to support small firms to grow, create jobs and weather the harsh economic headwinds’.

‘Even before the EU referendum result, our members were reporting tough business conditions right across the country. The referendum result has settled the question of UK membership of the EU but there are many questions left unanswered.’

Meanwhile, a separate survey has suggested that business pessimism doubled in the week following the Brexit vote.

Chancellor George Osborne recently announced plans to cut corporation tax below 15%, in a bid to demonstrate that the UK remains ‘open for business’.

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