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UK hits rock bottom but is already thinking about recovery … with Brexit permission


United Kingdom is suffering a severe blow, both health and financial, due to the coronavirus pandemic. British GDP has collapsed in April, and second-quarter data is assumed to be disastrous, but neither investors nor experts are overly concerned. They all have their sights set on Recovery, now that the reopening has begun, and especially in the Brexit, since negotiations with the European Union have resumed and the positions remain as far apart as they were months ago.

Analysts have valued the Gross Domestic Product data for the month of April (the UK economy suffered a record drop due to the closure decreed to stop the Covid-19 outbreak, and sank 20.4%) and they have all come to the same conclusion: they are very bad figures, yes, but after all they are only a reflection of the situation of confinement that the country has experienced.

"Investors are not stupid, they know that April was possibly the high point of the shutdown. The unprecedented nature of the downturn in economic activity only reflects the unprecedented act of effectively shutting down a modern economy"They stand out from AJ Bell. For their part, the experts from Close Brothers Asset Management highlight that" the April GDP figures are shocking and certainly cause for concern, "but remember that after the closure of the economy, it was clear that "The rear view mirror was going to reflect a difficult environment." So now that factories have started to reopen and workers are gradually returning to their jobs, safely, "the question is how the situation "and what the recovery will be like.

As they say from this firm, "the journey to recovery will not be easy", and more considering that the OECD has said that the United Kingdom will be one of the countries hardest hit by the coronavirus, even expressing doubts about the economy's ability to recover from the economic blow now that the Brexit negotiations have resumed, which will reach their critical point at the end of year. By that time there will have to be agreement, given that the Prime Minister, Boris Johnson does not intend to extend the transition period which ends on December 31.

"The way back will be much slower than the decline," point out analysts at Pantheon Macroeconomics, who recall that "GDP normally takes three to four years to return to its pre-recession peak". They believe that the British economy "will take a long time to recover from the beating inflicted by the pandemic", although they also stress that April represents, almost certainly, "the lowest point of GDP this year", so now that activity economic recovery is likely to rebound, although it will be "slow", so they predict that the economy will end the year "5% below the maximum reached before the crisis."


Activity has now begun to pick up, but "hopes for a speedy recovery seem out of place," Kingswood experts say. A valuation with which they agree in Deloitte, which indicates that "Making up for lost growth will take years, not weeks", since "unemployment, the increase of the debt and the insolvencies of the companies will weigh on the recovery". In fact, in this firm they believe "unlikely" that the economy will return to pre-crisis activity levels "until 2022".

EY believes the UK is heading for a "substantial and record contraction in the second quarter, probably above 13%", although given that the UK Government will continue to gradually relax the closure restrictions, "GDP is expected to begin to return to a clear growth in the third quarter. " The question that must be asked, Fidelity analysts say, "is for how long", given that there is talk of a possible regrowth, and points out that "the ability of companies to stay afloat and retain staff will be key" to achieve recovery.

"April's GDP data underscores the amount of recovery it takes to get back to normal," they say on Markets.com, a normal that is threatened by Brexit. And it is that while for all advanced economies the main risk remains a possible second wave of the virus that requires new blocks to contain it, the case of the United Kingdom is different because "faces additional risk from current negotiations with the EU on future relationship"Berenberg says.

Analysts at this German firm recall that negotiations are stalled and that positions are, today, "very distant on key issues such as governance, uniform rules of the game, fisheries and, most importantly, the border from Northern Ireland. " In his view, "in addition to the enormous economic and reputational damage caused by the poorly managed pandemic, the risk of a disorderly exit from the single market represents an additional threat to the United Kingdom." They think that a totally messy exit could lead the UK back into recession in early 2021.

Having been pushed aside by the coronavirus, the Brexit talks are now refocusing on attention. The UK and EU plan to speed up the pace of negotiations, and the next key date is the high-level summit between Johnson, European Commission President Ursula von der Leyen, and European Council President Charles Michel, the June, 15. Whether there is a deal or not, London plans to introduce a temporary regime at its border with the EU to avoid accumulating burdens on companies, which are already dealing with the effects of Covid-19. The UK hopes that the EU's chief negotiator, Michel Barnier, will be flexible in its demands, which have been rejected so far. It remains to be seen whether or not positions are approaching, after the last conversations ended with little progress.

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