The Wreck of 2018 Shows in Brexit Barometer, and 2019 Looks Worse

The Wreck of 2018 Shows in Brexit Barometer, and 2019 Looks Worse

Uncertainty over Brexit touched every corner of the U.K. economy in the fourth quarter as the Bloomberg Brexit Barometer skidded to the lowest level since the country voted to leave the European Union in 2016.

The December barometer was 42 percent below its year-earlier level, weakened by slowing growth and investment. Meanwhile, U.K.-EU negotiations on the withdrawal agreement have failed to produce an accord that Parliament can pass. The U.K. is due to leave the bloc on March 29, with or without a divorce agreement, and uncertainty and fear have intensified as the exit approaches.

Wild Ride

The U.K. economy ended 2018 on a low, per the Bloomberg Brexit Barometer

Source: Bloomberg Economics

Note: Zero represents the long-run average of the barometer.

The barometer, which includes data for growth, labor market, inflation and other key indicators, averaged 8.3 in the fourth quarter—deep in “windy” territory and the lowest three-month average since 2013.

Read more: Bloomberg’s Daily Brexit Barometer

The uncertainty gauge, which includes market volatility, was responsible for the bulk of the fourth-quarter decline, followed by the employment indicator. The barometer average for the October-December period was down 16.4 points from the third quarter. It was the biggest quarter-on-quarter decline since the second period of 2016, when  the surprise referendum result triggered the departure process. 

What Our Economists Say…

The barometer is yet another piece of evidence that suggests the economy lost steam at the end last year. It’s clear that until the Brexit debacle is resolved, growth is likely to suffer under the weight of uncertainty.
—Bloomberg economist Dan Hanson

With anxiety about a no-deal Brexit making consumers and companies more and more jittery, growth in the U.K. economy slowed to just 0.2 percent in the fourth quarter from 0.6 percent in the prior three months, according to the Bank of England’s forecast. Investment dropped in each of the first three quarters last year, the longest period of decline since the 2008-2009 financial crisis.

In the markets, an indicator of implied volatility on the FTSE 100 rose in late December to the highest level since the aftermath of the referendum. The FTSE 100 Index posted its steepest annual drop since the financial crisis, plunging 12 percent in 2018. What’s more, funds buying British equities recorded their biggest outflows on record last year, according to Bank of America Merrill Lynch.