UK Triggers Article 50 Requesting Exit from EU. Now What?

Well, the UK has triggered Article 50, officially requesting to exit from the European Union. Since the Brexit vote nine months ago, the UK economy has grown at a higher rate than expected, prompted by the fall in the value of the pound. Exports have increased and consumer spending over the past six months has been strong. Employment is at an all-time high and the unemployment rate is at 4.7%. All looks good for the UK – but......

Prices for materials and fuels paid by UK manufacturers for processing (input prices) rose 19.1% on the year through February. These inflation pressures, mainly from the fall in sterling, are starting to feed through to higher retail prices. The increase in consumer spending appears to have been in anticipation that prices will rise, and it has fueled a large increase in consumer debt; unsecured debt is now at 27% of household income.

So, we look forward to prices rising faster than wages and a fall in the disposable income putting pressure on wage increases and eventually negating the price advantage that UK industry is currently enjoying.

With close to two years of negotiations before the UK actually leaves the EU, the biggest enemy is uncertainty. This is expected to delay investment decisions in the UK; but, more importantly, it could force UK-based production companies to consider relocating at least some of their production to the EU to ensure they can trade tariff-free in the remaining EU 27 countries.

This is not a pretty picture. As a UK national I hope I am wrong. However, it is hard to see the UK coming out of the negotiating process in a better position, as the Brexit campaigners promised before the vote.

On a global basis this is just a little local problem. It is difficult to see more than a very slight softening for demand for powered equipment in Europe over the period of exit negotiations. The sun still will come up tomorrow and the World will still need as many tractors, excavators, gensets, etc... as it would have had Brexit never happened.

Edward Hadingham is president of PSR's European Operations