IHS anticipates Brexit impact

IHS Automotive anticipates that the UK’s vote to leave the EU will lead to a reduction in its current light-vehicle sales forecast, on top of an already expected decline for the market.

IHS also sees production being hit in response to the reduction in UK sales, while the potential for slower growth in the Eurozone could cause a secondary effect on light-vehicle sales in Europe, resulting in an additional pull-back in production levels during 2017.

The IHS view on the macroeconomic impact to the country from this situation, put together by its chief UK and European economist, Howard Archer, is that the vote to leave the EU is bad news for the UK economy, certainly in the near and medium term.

Howard said, ‘Following the UK’s decision to leave the EU, IHS is substantially cutting its GDP growth forecasts to 1.5% (from 2.0%) for 2016, 0.2% (from 2.4%) for 2017, and 1.3% (from 2.3%) for 2018. Major economic and political uncertainty is expected to be a fact of life for some considerable time, likely weighing down markedly on business and household confidence and behaviour, so dampening corporate investment, employment, and consumer spending.

‘Weaker asset markets and tighter credit conditions are seen further hampering UK growth, while the housing market could suffer a marked downturn. Financial sector activity in the City of London may well be hit quickly. Foreign investment in the United Kingdom is expected to suffer (both direct and portfolio). Additionally, while the sharp fall of sterling following the vote should help UK exports, it will likely push up inflation, thereby squeezing consumer purchasing power and lifting companies’ input costs. Furthermore, the UK’s decision to leave the EU will undoubtedly dampen European growth, which will hamper UK exports despite a weaker pound.’

Howard continued, ‘Over the long term, how the UK economy fares outside the EU depends on many factors. This notably includes the extent of the trade agreements that are reached not only with the EU but also with other regions/countries; how much the UK is affected by non-trade barriers when exporting to the EU; the amount of deregulation that is undertaken in the UK; what immigration policy is followed; how the City of London’s role as a dominant financial centre is impacted; and how foreign direct investment into the UK is affected. It could take five to 10 years for all of these matters to be sorted. In the meantime, there is a very real risk that Scotland at least could leave the United Kingdom. This would substantially aggravate political and economic instability.’