The path to Brexit has not run smoothly, with many twists and turns along the way. The UK Prime Minister, Boris Johnson, is a hard Brexiteer and initially promised to leave the European Union by 31 October with or without a deal. However, Parliament did not approve the Prime Minister’s deal and he was forced to ask for a further extension until 31 January 2020, calling a snap election for mid-December.
Against this political backdrop, the outlook for the UK economy continues to remain uncertain and Euromonitor International forecasts that GDP will grow for the full year by 1.2% in 2019, with slightly stronger growth of 1.3% forecast for 2020.
Consumer and business confidence have taken a hit since 2018 and continue to trend below the historic average. However, the labour market remains strong with a 3.8% unemployment rate and 3.8% nominal year-on-year wage growth in July 2019 (around 1.7% after inflation), despite all the Brexit uncertainty. The UK economy also narrowly avoided recession according to the Office of National Statistics, after a -0.2% contraction in Q2 2019, with a marginally positive increase of 0.3% in Q3 2019, thanks to the performance of the services sector. Euromonitor International predicts that a delayed Free Trade Agreement/Customs Union with the EU will be the most probable outcome, rising from 31% to 50% in probability.
In terms of tourism, the effects of Brexit uncertainty have already taken their toll with inbound arrivals falling by -5.2% in 2018, as demand dropped from key European source markets like France and long haul source markets like Australia and Japan. Despite the weakening in European source markets, Europe will continue to be the main source of demand for the UK due to its geographic proximity, trade and cultural ties.
Under a No-Deal scenario, the UK government warns of queues and disruption at ports and borders, while there are concerns that there will be less availability of food, rising food prices and disruption to the supply of medicines according to the Yellowhammer report on Brexit contingency planning.
The most impact of a No-Deal Brexit would be felt by UK outbound departures, where residents will witness rising prices for food and energy, which will lead to trading down, and opting for domestic trips over international. The effects of a No-Deal Brexit would be felt over the long term, with 4.7 million fewer trips taken by 2024, to reach 88 million. Popular destinations that have a strong value for money positioning will continue to appeal to UK residents such as Spain, France, Ireland and the US, whereas Japan and Greece are expected to see a decline in UK visitors over 2019-2024 visitors despite the upcoming Tokyo Olympics and the revival of North African destinations that are likely to steal share away from Greece to Egypt and Tunisia.
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