Mar 30, 2017 11:57 AM EDT
Brexit has been made official and the costs could be high. Many are rejoicing UK's new claimed sovereignty and tighter border controls as the country leaves the European Union, but the government and several analysts warn of the tough times ahead.
While UK Prime Minister Theresa May told MPs that Brexit doubters should look forward with optimism, it is a fact that divorce from the EU will be costly and that could weigh heavily on the UK's economic prospects in the next years. The Office for Budget Responsibility and some economic analysts throw in their thoughts and projections as Brexit begins.
Slow Economic Growth
The UK's independent fiscal watchdog predicts a growth of two percent in 2017 with a bigger downgrade in 2018 of 1.6 percent. Before the people went on to vote for Brexit, the OBR expected a growth of 2.2 percent in 2017 and 2.1 percent in 2018, as reported by CNN Money.
Due to the weaker growth, government revenues will be affected as business and workers pay less tax. Simply stated, the government will have to borrow more during Brexit negotiations. The OBR predicts government debt to reach £1.9 trillion by 2021.
Last March 2016, it forecasted a government debt of £1.74 trillion. That number would amount to a £160 billion of extra government borrowing. Accordingly, this will mean cuts to spending and higher taxes.
The uncertain future of the UK because of Brexit will also affect the employment sector. Notably, private hiring dipped to its weakest level in three years. This is according to a survey conducted by the ManpowerGroup published this month. Some companies, as well, will have to shift jobs abroad. Banks have already started this process of relocating thousands of jobs outside the UK after the Brexit vote.
OBR forecasts 830,000 people claiming their unemployment benefit, which is 50,000 more than it predicted in March 2016. The number will grow by the end of 2020 with 880,000 that is more than 10,000 than it forecasted before the Brexit vote. Unemployment will gradually rise in 2018.
Pound, Currency and Interest Rates
Following the formal process of Brexit, the pound dropped against the euro. An analyst notes that although negotiations for Brexit will last up to two years, the uncertainty will rock rates as currency is very sensitive to market volatility, as reported by the Sun. The UK interest rate is set by the Bank of England and many economists have observed that the rocketing inflation could put pressure on the BoE to put up rates.
Since Brexit, house price growth slowed although that didn't cause a big impact. One expert said that the housing market is still a good investment. The only way to see a house price crash is when people defaulted on their mortgages. Outside of London, house prices have even grown faster.
Currently, a driver of a UK-registered car is allowed to drive anywhere in the EU, the EEA (European Economic Area), Switzerland and Serbia, and not have to carry a green card that proves you have insurance cover.
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