The British government appears to be on a course moving toward a deal to exit the European Union following critical votes on March 12. Our base case is what we would call the “extend and pretend” scenario: the government will likely ask for an extension of Article 50 until mid-to-late June of this year from a scheduled departure of March 29. The combination of the Labor Party changing its stance on a possible second referendum and Prime Minister Theresa May’s newfound openness to an extension has finally pushed hardcore Brexiteers to take a new look at May’s plan to exit the bloc.
The uncertainty tax that has hovered over the U.K. economy like a dark cloud for the past three years has damped business investment and consumption. During the upcoming two-year transition, it is critical that U.K. policymakers move to stimulate outlays on capital expenditures–software, equipment and intellectual property–that influence productivity, wages and national living standards.
