RWI Konjunkturberichte

The short-term outlook for the UK is currently particularly uncertain, since there are ongoing negotiations on the mode how the UK will leave the EU. Depending on the outcome of these negotiations, which must be concluded in March 2019, the outlook can be brighter (in case of a soft exist) or gloomier in case of a hard Brexit. In this paper, the baseline forecast for the UK assumes that the currently observed economic conditions will prevail over the forecast horizon. After that, potential outcomes of the Brexit negotiations are discussed. Finally, simulations with the RWI Multi Country Model are used to quantify deviations from the baseline scenario. In accordance with the recently observed trends in UK trade the sharp devaluation of the Pound Sterling had a negative impact on aggregate production. The impact of trade restrictions is potentially very strong. The UK economy is also dampened because companies hesitate to invest as long as future market access is uncertain. The estimated effect of Brexit on other countries is negative, but rather small.

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