RaboResearch - Economic Research

Brexit Monitor: Running out of time

Economic Comment


The decision by the British people to leave the EU may have serious consequences for Dutch businesses. Our Brexit Monitor keeps you up to date with the latest Brexit developments. What effects will Brexit have, and what can you expect? An overview of the main news and analysis from experts. In this issue:

  • Political developments: Now it’s up to the British Parliament
  • Economic developments: Brexit takes its toll on the economy

Political developments: Now it’s up to the British Parliament

EU-UK deal rejected by the British parliament

On 14 January the British Parliament rejected the deal that the EU and the UK agreed upon in November 2018. 432 members of parliament (MP) voted against the deal, representing the largest parliamentary defeated of a British Prime Minister (PM) in history. The main reason for this massive rejection is the fact that most factions in British parliament favour an alternative Brexit outcome. 

Uncertainty persists

A game of chicken is expected to unfold in the British parliament now that the deal has been rejected. Labour has already tried to trigger an early election, but failed to get sufficient support. Others might try to trigger a referendum, an option with a higher chance of succeeding given the recent increase in support for it in the British Parliament.

That said, the only clear majority in the British parliament is one against a hard Brexit. And that is why we believe the British parliament will eventually approve the current deal mid-February, though in a somewhat adjusted form that reflects a consensus in the British parliament. PM May will have to reach out to the various factions to build a consensus, a process that has already started with the follow up plan the government submitted to parliament after the deal was rejected. The vote on this plan will be an important milestone.

Article 50 extension

The rejection of the deal makes it very difficult to manage an orderly Brexit by 29 March 2019. It is therefore likely that the UK will ask for an extension of article 50. PM May has so far refused to confirm this option in order to keep the pressure on both the EU and fellow MP’s. This is a risky approach, one that contributes to our assessment that a hard Brexit is still almost as likely as an orderly one. On 29 January the British Parliament will also vote on an amendment that imposes an extension of article 50 if no deal is approved by 26 February on the government. The parliament is trying to gain more control of the Brexit process, something that could help reduce the odds of a hard Brexit. The EU will also have to agree to an extension though, which is not for granted, particularly if the current gridlock in British politics persists.

Economic developments: Brexit takes its toll on the economy

Even Santa cannot beat Brexit

Despite the winter holiday season, retail sales fell by 1.2% in December relative to November, the largest monthly contraction since May 2017. In line with this negative development, consumer confidence also fell to the lowest level in 5 years, despite real loan growth having reached a new high in October. It seems that Brexit uncertainty is now spreading to private consumption as well, after having hurt investments in 2018.   

Economic slow down

The contraction of retails sales was not the only bad economic news in the UK in the past month. All in all we expect economic growth in 18Q4 to have been very weak (0.2% q-o-q). If confirmed this would imply GDP volume grew by only 1.3% in 2018 as a whole.

The Pound-paradox

The GBP to EUR exchange rate floated around 0.90 in the second half of December, implying the Pound was weaker end-2018 than in previous months. The rejection of the EU-UK Brexit deal surprisingly helped the pound edge higher to 0.88, as financial markets now assess a softer Brexit has become more likely. We expect a light appreciation of the Sterling against the euro once the deal gets approved. A hard Brexit instead would cause a significant depreciation towards parity.



Alexandra Dumitru
RaboResearch RaboResearch Netherlands, Economics and Sustainability Rabobank KEO
+31 6 2326 6856

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