The document discusses the economic impacts of Brexit and current global economic conditions, highlighting a downturn in growth forecasts due to trade tensions. It outlines the complexities and potential outcomes of Brexit negotiations, particularly regarding the Irish backstop and the implications of a no-deal Brexit. The text also emphasizes the importance of business investment and the adoption of technology to enhance competitiveness amid uncertainties.

1. David Smith

2. Interesting Times
Shocks, surprises
and opportunities

3. Three themes
• The broader economic backdrop.
• Britain and Brexit.
• What it means for the economy, and you.
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4. A year ago the world was firing on all cylinders
•
Strong (4%) growth in
world GDP in prospect,
driven by a pick-up in
world trade.
•
An accelerating upturn in
North America.
•
Continued robust growth
in the emerging world,
including China and
India.
•
Unexpectedly strong
growth in Europe.

5. But the brakes have gone on
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6. Some of which is down to him
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7. Protectionism’s bad for growth
“The global growth forecast for 2019 and 2020 had
already been revised downward, partly because of
the negative effects of tariff increases enacted in the
United States and China earlier that year. Risks to
global growth tilt to the downside. An escalation of
trade tensions beyond those already incorporated in
the forecast remains a key source of risk to the
outlook.” IMF, World Economic Outlook, 2019
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8. Read his tweets

9. And the effects are clear to see

10. Though he wanted to win this trade war
quickly

11. So a softer patch for the world economy
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12. Britain and Brexit
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13. Strange, strange times
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14. The Brexit timetable – Phase 1
Article 50 of the withdrawal process was triggered on March 29
2017, and due to be completed within two years: by March 29
2019. It was agreed at an early stage that the withdrawal
agreement would cover three main elements:
• A “divorce bill” covering the UK’s commitments made as an EU
member, including contributions to the budget until the end of
2020. The agreed sum is around £39bn ($51bn).
• Measures to secure the rights of EU citizens in the UK and UK
citizens living in the rest of the EU.
• A legal commitment to maintaining an open border between
Ireland and Northern Ireland, in line with the Good Friday
Agreement which secured an end to “the troubles”.
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15. But we’ve got
stuck in the Irish
backstop.
S still in a mess
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16. What is the Irish backstop?
In the event of the UK and the EU being unable to negotiate a comprehensive trade
deal by the end of the transition period (December 2020 extendable to December
2022), the backstop will apply. It consists of two elements:
• The whole of the UK will remain in a single customs territory with the EU, similar to
the customs union but with the proviso that the UK would be free to negotiate third
country trade deals.
• Northern Ireland, additionally, to effectively remain in the EU single market, following
EU regulations, so goods can freely cross the border with Ireland.
• It is this, treating Northern Ireland different to the rest of the UK and establishing a
border in the Irish Sea that has so upset the Democratic Unionist Party.
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17. 17
A ‘cliff-edge’ Brexit is unlikely but is still a possibility

18. 18
Because we’re going to have a new prime minister

19. What would no deal mean?
• A short-term economic shock, a sharply lower pound. Falling house prices,
higher unemployment. A shift in the direction of UK interest rates. Bank of
England would probably respond in a similar way to August 2016.
• Disruption of EU supply chains, congestion at the ports. Possible delays in
supplies of food, medicines, etc.
• Long-run economic damage: 8%-10% of GDP.
• A political crisis in the UK, bringing a Corbyn government closer. Risk of civil
disturbances.
• Status of EU citizens left in limbo, though government has offered reassurance.
• A hard border in Northern Ireland.
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20. Business isn’t bluffing
"The threat of a no-deal Brexit is already costing businesses
millions in expensive contingency measures. If the UK were
to leave the EU without a deal, it would be an unparalleled
act of self-harm. A no-deal Brexit cannot be managed. We
therefore urge you to take it off the table now, end the huge
cost of uncertainty, protect jobs and safeguard prosperity for
the UK.“
Joint letter to the prime minister from the CBI and other
industry associations, February 2019
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21. EU migration is down sharply
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22. Notwithstanding the Brexit Party, there are some
Bregrets
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23. What is going to happen?
In the short-term it comes down to five possibilities:
• Parliamentary approval is achieved by October 31 for something like the Theresa May’s withdrawal agreement,
though under a new prime minister and with amendments to the political declaration. This would provide a boost
to business confidence. (20%)
• Parliamentary approval is not achieved, there is a vote of confidence and a general election. (10%)
• Parliamentary approval is not achieved, and there is a second referendum. (20%)
• No agreement is reached by October 31, so a further extension is granted. (40%)
• No agreement is reached by October 31, so Britain leaves without a deal. (10%)
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24. If no deal is avoided, what’s the end-point?
A very long transition period, lasting well beyond December 2020,
after which:
• Single market for goods (Chequers), or
• Trade agreement plus defence and security (Canada-plus), or
• EEA membership, single market but no customs union (Norway), or
• Negotiated ‘WTO’ exit.
• Britain stays in the EU after a shift in public opinion.
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25. But getting there will be a challenge
The easiest trade deal in history?
"The trade negotiations ahead will be vastly more
complex and more difficult than the ones we
have just been through.“
Sir Ivan Rogers, former UK ambassador to the EU
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26. What does this mean for the economy?
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27. Growth prospects are weaker than we’d like
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28. Stockpiling has helped this year
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29. Retail sales look surprisingly strong, given the headlines
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30. Perhaps buoyed by high employment
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31. But no productivity growth for a decade
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32. The key is to unlock business investment
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33. Plenty of reasons to invest
• A generous annual investment allowance of £1 million, from the start of
this year until the end of 2020. Compares with just £200,000 for the period
January 1 2016 to 31 December 2018. This is a strong incentive to invest.
• Finance is generally available, for small, medium and large firms. There
has been a noticeable increase in finance availability.
• A tight labour market provides a spur for automation.
• The uncertainty will not last for ever and, in any case, there is no such
thing as a world devoid of uncertainty.
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34. And we can’t afford to miss out on robotics and AI
“Robots increase productivity and competitiveness. Used effectively, they enable
companies to become or remain competitive. This is particularly important for
small-to medium sized (SME) businesses that are the backbone of both
developed and developing country economies. It also enables large companies to
increase their competitiveness through faster product development and
delivery.” International Federation of Robotics.
“Thanks to recent innovations in cloud computing and big data storage
and analysis, artificial intelligence is making great strides in improving
efficiency in manufacturing environments, leading to better performance.
AI also provides critical information to help managers make more informed
business decisions.” Industry Week
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35. An up and down period for construction
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36. And things are currently down
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37. Though the housing sector is holding up
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38. So plenty to think about
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39. But don’t forget to count those skips
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