UK private sector contracts again, but outlook improves

British business activity, which has been buffeted by the country’s Brexit crisis, fell again in the three months to July but is expected to pick up over the next three months, the Confederation of British Industry said on Sunday.

The balance of firms reporting growth stood at -9%, indicating a less widespread slowdown than June’s -13%, which was the weakest reading in nearly seven years, the CBI’s monthly Growth Indicator showed.

An indicator measuring expectations for the next three months was the strongest since October last year at +9%.

Britain’s economy has been whip-lashed by the twists and turns of Brexit so far in 2019 and by a slowdown in the global economy, caused in large part by rising trade tensions between the United States and China.

Growth was strong in the first three months of the year, as many companies tried to complete work before possible disruption after the original March 29 deadline for leaving the European Union, which has since been pushed back.

The hangover from that early 2019 rush is widely expected to have caused gross domestic product to flat-line or even contract in the second quarter.

“We expect underlying growth to remain subdued with risks from Brexit and global trade tensions remaining high,” Annie Gascoyne, the CBI’s director of economic policy, said.

Britain’s new Prime Minister Boris Johnson has said he is prepared to lead Britain out of the EU without a deal on Oct. 31 if necessary.

That new Brexit deadline could cause a repeat of the stock-building seen in early 2019, some economists have said.

The British government is working on the assumption that the European Union will not renegotiate its brexit deal and is ramping up preparations to leave the bloc on Oct. 31 without an agreement, senior ministers said on Sunday.

Boris Johnson, who took over as British prime minister on Wednesday with a promise to deliver brexit by the end of October “no ifs or buts”, has said he plans to seek a new exit deal with the EU. The EU has said repeatedly that the deal cannot be reopened.

Leading brexit supporter Michael Gove, who Johnson has put in charge of ‘no deal’ preparations, wrote in the Sunday Times newspaper that the government would undertake “intensive efforts” to secure a better deal from the EU.

“We still hope they will change their minds, but we must operate on the assumption that they will not... No deal is now a very real prospect and we must make sure that we are ready,” Gove wrote.

“Planning for no deal is now this government’s no. 1 priority,” he said, adding “every penny needed” for no deal preparations would be made available.

The Sunday Times also reported that Dominic Cummings, the mastermind behind the 2016 referendum campaign to leave the EU and now a senior aide to Johnson, told a meeting of the prime minister’s advisers that he had been tasked with delivering brexit “by any means necessary”.

Ministers are preparing for a no-deal emergency budget in the week of Oct. 7, the newspaper added.

Writing in the Sunday Telegraph, new finance minister Sajid Javid said he had ordered no deal preparations in his Treasury department to be stepped up.

“In my first day in office... I tasked officials to urgently identify where more money needs to be invested to get Britain fully ready to leave on October 31 - deal or no deal. And next week I will be announcing significant extra funding to do just that,” he said.

Javid, a former interior minister, said this would include funding for 500 new Border Force officers.

Johnson has said the Irish backstop, an insurance policy designed to prevent the return of a hard border between EU-member Ireland and the British province of Northern Ireland by provisionally keeping Britain in a customs union with the EU, must be removed from any brexit deal.

It was one of the most hotly contested elements of the divorce agreement his predecessor Theresa May reached with the EU, and opposition to it was a key driver behind the deal being rejected three times by parliament.

“You can’t just reheat the dish that’s been sent back and expect that will make it more palatable,” Gove wrote. “We need a new approach and a different relationship. Critically, we need to abolish the backstop.” Lawmakers from opposition parties and the governing Conservative Party have threatened to try and block Johnson taking Britain out of the EU without a divorce deal.

The Observer newspaper reported that former finance minister Philip Hammond, who quit last week before Johnson took office, held talks with the opposition Labour Party about how to stop a no-deal brexit.

Labour leader Jeremy Corbyn said on Sunday his party would do everything it could to prevent the country leaving the EU without a deal.

Although Johnson has been adamant he will not hold an election before brexit, his Conservative Party does not have a majority in parliament, are divided over brexit and under threat of a no-confidence vote when parliament returns in September.

Agencies