How Will Another Brexit Extension Impact the British Economy?
The IMF estimates that Brexit uncertainties have had a bigger impact on the British economy than the actual departure of Britain from the EU itself. Rising concerns of what the future would look like once Britain leaves the EU have kept businesses hesitant from making significant investments, severely impacting business confidence.
Any further delay to the Brexit, as has been requested recently, would only serve to prolong the uncertainty and weakness in the economy. If Britain gets the go-ahead from the EU on another Brexit extension, this could hamper business investments for a longer time. It could also impact consumer confidence and reduce sales growth in a multitude of sectors, ranging from retail to construction.
A delay in Brexit could spell yet another period of weakness in the Pound. Over the past few weeks, the Sterling had strengthened and was trading bullish over increased hopes for a Brexit deal. However, once an extension is announced, although it could reduce the risks of a no-deal Brexit, the prolonged uncertainty could once again turn the Pound bearish against its major peers.
As the extended period of economic uncertainty and weakness looks set to continue, the Bank of England could most likely react by downgrading its growth forecast for the British economy. However, even as global trade tensions and a potential slowdown in economic growth have caused other central banks to step in with rate cuts, will the BOE be able to make such a move even as Brexit gets postponed again?
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