Chief economist update: Breaking up is hard to do

"They say that breaking up is hard to do, now I know, I know that it's true..." - Neil Sedaka.

This song must be playing in UK prime minister Theresa May's head - it should as it did in mine - when a second round of voting in the House of Commons on her Brexit deal with the EU produced the same result - a rejection. The only consolation was the 13th of March vote was defeated by just 149 votes - narrower than the record-breaking 230 "nays" back on the 15th of January this year.

She did her best, but her best still wasn't good enough. What now? Another vote of course, and this time to extend the timeline of the parting of ways between the UK and the EU from the 29 March deadline by three months to two years to allow the House of Commons to find a common ground.

But if they weren't able to agree on Brexit after two years and nine months of discussions since the original vote in June 2016, my sense is a consensus agreement would be forthcoming ... never, given the strong arguments on both sides of the divide.

May could resign as PM or she could be ousted and replaced. Or another Brexit referendum could be held. But I dare say, the debates, discussions and arguments would remain the same.

Going beyond the politics of Brexit, Brexiteers can argue that despite expectations of the UK's divorce from the European Union, Britain's economy continues to do A-OK.

Sure, UK GDP growth has slowed but which G7 economy hasn't over the past year? Not only that, data shows that as Q4 2018, the British economy has grown faster than all of its G7 peers -- Japan, Germany, France, Italy and Canada - except for the US. The FTSE-100 index even reached an all-time high in May 2018.

Likewise, the country's unemployment rate has remained at 4.0% -- the lowest level since the 1970s - and inflation that shot up due to the depreciation of the pound sterling (resulting from the June 2016 vote) has returned to the BOE's 2.0% inflation target - despite accelerating wages growth.

So much so, it allowed the BOE to raise interest rates twice since the Brexit referendum - a 25 bps increase in the Bank Rate from 0.25% to 0.5% in February 2017 and then another hike to 0.75% in August 2018.

On the flipside, "Remainers" can point to the general uncertainties that this Brexit brouhaha is creating, underscored by the weakening business investment over the past few months.

As well as, indications for a continued deterioration in the growth outlook, underscored by the Office for Budget Responsibility's (OBR) downgrade of the UK's growth forecast to 1.2% (from 1.6% in October 2018) this year - in line with the BOE's downgrade (to 1.2% from 1.7%) due to Brexit uncertainty.

Reminds me of the joke that did the rounds after the Brexit vote -- "Brexit was like the UK got drunk and accidentally unfriended Europe on Facebook." (Leo Kearse)

Laugh if you must but unless the Brexit issue is settled, nobody would be clicking "like" for the UK.

"...don't say that this is the end, instead of breaking up I wish that we were making up again".

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