Britons across different industries are already feeling the effects of the Brexit vote. The construction sector has been hit particularly hard. Workers have been laid off. Samira Shackle reports from London.
In the run up to Britain’s referendum on membership of the European Union, warnings from the Remain camp that exiting could precipitate an economic crisis were dismissed as “Project Fear.”
In the seven weeks that have passed since the 23 June vote, there are signs that these warnings could be borne out.
“The UK is likely headed for at least a mild recession in the medium term,” said Martin Michaels, economist at the Institute of Directors, a UK business body.
“Much of the economic fallout from the referendum results has impacted investment rather than consumption, so the costs are skewed toward the future,” he added.
“Some of these problems are being stored up, and when Article 50 is triggered, it will likely exacerbate the current issues affecting investment decisions, but will also affect consumption as individuals begin to increase savings and decrease consumption.”
Data released on 9 August by the National Institute of Economic and Social Research (NIESR) showed that Britain’s economy began to contract in the month following the vote. It contracted 2 percent in July, bringing quarterly growth down to 0.3 percent. The think tank said there was a 50/50 chance of Britain entering a technical recession – two consecutive quarters of negative growth – by next year.
Pound drops against the euro
Perhaps the first thing that most ordinary Britons noticed was the drop in the value of sterling.
“A holiday in Italy or France suddenly feels less affordable given the fall in the value of the pound against the euro,” said Surrey resident Julia Barnes.
“Of course it isn’t the worst thing that’s happened, but it does make you realize that this isn’t a joke and it’s going to have repercussions for all of us.”
Feeling the effects of uncertainty
Across different industries, people are feeling the effects of the lingering uncertainty. “The day after the referendum result, we were called into a meeting and warned that a huge chunk of our funding is likely to disappear,” said James Gregory, who works in the charity sector.
“It hasn’t happened yet but it will once Brexit is finalized, and for now we are operating with a huge question mark over everything,” he added.
One industry that has been particularly hard hit is construction. Britain’s builders reportedly had their worst performance in seven years in July after a collapse in new orders.
“The construction industry has grown steadily over the past few years and for the sector to experience two consecutive quarters of negative growth demonstrates the powerful effect uncertainty and a lack of confidence can have,” said Brian Berry, chief executive of the Federation of Master Builders.
Allie Wells is a recently qualified architect who was due to start a new job at an architecture firm in July. “The week before my start date, they called me up and told me that there wasn’t a job for me anymore,” she told DW.
“They said they had lost a third of their new contracts overnight and were having to make existing staff members redundant.”
Britain faces the prospect of a freeze in new homes being built after the current batch of projects is completed. Shares in property development companies have tumbled – but the repercussions go much further.
“The country’s housing crisis and the enormous skills shortage our sector faces owe much to how the construction industry suffered during the last economic downturn,” Berry said. “It’s pivotal that we learn from those mistakes and find a way to keep Britain building.”
Worse than downgrade during 2008 crash
The Bank of England recently slashed its growth forecast for 2017 from 2.3 percent to 0.8 percent, the biggest ever downgrade in growth from one inflation report to the next. The cut exceeds that made during the 2008 financial crash.
The new Chancellor of the Exchequer Philip Hammond has admitted that “businesses’ confidence has been dented” by the Brexit vote. He has hinted that his autumn statement might include spending increases and tax cuts to shore up the economy.
“Our job is to restore as much certainty as we can, as quickly as we can,” he told reporters last month.
But with the exact nature and timeframe of Britain’s exit from the EU still very much up in the air, restoring confidence is not a simple proposition.
“At the moment, the main issue affecting the UK’s economy is the one least likely to dissipate in the near future: uncertainty,” Michaels said.
“There is little the government can do to reduce uncertainty while trying to negotiate the UK’s future relationship with the EU,” he said, “but it can help businesses thrive in other ways.”