Uncertainties over Brexit are harming UK's economy

On Wednesday, British Prime Minister Theresa May sought a three-month delay for Britain's divorce from the European Union, which originally was scheduled for March 29. The European Union has given her until April 12 to find a way forward.

The Brexit process has been encountering difficulties due to the differences between the ruling Conservative Party and the opposition Labour Party in the United Kingdom, as well as the differences within the ruling party and the opposition and those between May's team and the EU officials, which could lead to a no-deal Brexit.

Although, there is little possibility that the EU will grant further concessions to the UK, many expect the two sides to reach a modified deal. For instance, European Commission President Jean-Claude Juncker said the EU will not change the Brexit deal, but can negotiate on the "backstop", according to which an open border between the Republic of Ireland, a EU member, and Northern Ireland, which is part of the UK, has to be maintained in the event of the UK leaving the EU without an all-encompassing deal.

But since the election to the European Commission is scheduled to be held in May and the newly-elected commission president is expected to assume office in July, Brexit could face new variables.

The uncertainty over the Brexit deal has already had an impact on the UK's economy. Irrespective of what the Brexit deal produces, London's status as a top international financial center could suffer. The UK has prided itself as the center of the global financial service industry and for being the home of Euroclear and the European Banking Authority. But the EU has decided to shift the EBA from London to Paris and move out Euroclear to another part of the continent.

Some large banks and financial institutions are planning to transfer their huge euro assets to other cities such as Frankfurt, Paris and Dublin, so after Brexit, many institutions will have to re-formulate their strategies. For example, Morgan Stanley, Goldman Sachs and JP Morgan are planning to shift their businesses to Frankfurt.

The uncertainties over Brexit have also affected Britain's domestic market, particularly the production and consumption sectors.

For example, what will be the trade relationship between third-party countries and the UK after the latter ceases to be a member of the EU Customs Union? Also, numerous free trade agreements which apply to the EU need to be re-negotiated during the transition period.

On the industrial front, the automobile industry will be one of the largest industries to suffer. Honda has already announced that it is preparing to shut down its sole British factory and Nissan has said it would cancel the production of some car models. And Jaguar Land Rover has laid off many employees and carried out strategic transformation of the company.

For pharmaceutical enterprises, Brexit will bring about extra operational costs. For example, GlaxoSmithKline has said it has to bear a loss of billions of dollars in the two years following Brexit. And British Midland Airways has blamed Brexit for the problems leading to its closure on Feb 16.

As far as consumption is concerned, the latest report by the KPMG shows British retail sales increased only by 0.5 percent in February, which means a year-on-year decline of 1.1 percent in the growth rate.

Besides, Bank of England has cut Britain's growth forecast from 1.7 percent to 1.2 percent and predicted a sluggish global market because of Brexit.

Although the full impact of Brexit is not yet clear, its short-term impact on the economy is gradually emerging. And although many expect the UK to become more dynamic after leaving the EU, we still have to wait to see what Brexit will actually mean for the UK, its economy and its people.

The author is a researcher at the Institute of World Economics and Politics, Chinese Academy of Social Sciences.
The views don't necessarily represent those of China Daily.