3 years from its vote on the United Kingdom and EU membership still has. Under pressure from members of her cabinet, Theresa May has decided that running the Brexit clock is in nobodys interest. And if this fails, there will be another vote on requesting an expansion to the Article 50 negotiation process on March 14. It’s for that reason invest, in the uk economy, and because, in the existence of policy doubt, the exchange rate requires a hit as investors become less willing to trust. To see this, the graph plots movements in the exchange rate as well as policy doubt.
The graph shows doubt sky rocketed following June 2016’s EU referendum. Since policymakers policy doubt declined and so after by March 2017 when Mrs May triggered Article 50 at an effort to enter negotiations. Nonetheless, the have taken their toll, as evidenced in policy doubt from the spike in 2019 and 2018. The pound is caused by policy doubt. This, in turn, translates into inflation as well as adds stress on that the Bank of England to either raise interest rates or become less unwilling to excite the economics by cutting rates of interest if a damaging no deal Brexit becomes fact.
Large swings in the exchange rate, along with higher policy uncertainty, implies that UK exporters face constant uncertainty about their earnings and future investments. This makes them less inclined to invest. Not only does this deprive the economics of new jobs, in addition, it undermines the UK productivity prospects, adding to that the countrys well known productivity puzzle. Put simply, the ongoing policy doubt affects both ends of the economics! customers who face lower incomes and export manufacturers who prefer to not create productive investment because looming risk poses a threat to their profits. Action required – To counteract the negative impact of increasing policy doubt on business investments and productivity, one alternative the United Kingdom government has is to aggressively cut that the corporate tax rate. This currently stands at 19% for that the UK. This is already much lower than that the OECD average of 23.8%. Since that the UKs corporate tax rate is already a lot lower than its rivals, without having much positive impact, I’m afraid that Mays government is operating out of alternatives to counteract the negative impact of uncertainty.