How the UK went from leader to laggard

Chart of the week

The vote to leave the European Union has cost the UK dearly already. Not much time is left to prevent even more economic damage

Compared to 2019, when the entire market was eagerly watching events surrounding Brexit, the topic has gone relatively quiet, at least from financial markets’ perspective. Both the Covid-19 crisis and the U.S. elections are attracting more attention than the imminent end of the transition phase. However, the clock is ticking without mercy, as European-Union (EU) chief negotiator Barnier keeps reminding us. In light of the time it will take for legal processes in the UK, as well as on the continent, only a few weeks remain to avert a disruptive UK exit from the European common market.

The UK will probably be spared the horror scenarios of an abrupt end to cross-border traffic or a sudden shortage of pharmaceuticals or specific foods. Nevertheless, London in particular should be keen to avoid any additional damage caused by leaving the EU. As our "Chart of the Week" shows, the outcome of the EU referendum has already inflicted considerable economic pain. While the United Kingdom recorded significantly higher growth rates (and thus gains in prosperity) than the rest of Europe in the years prior to the EU referendum, it is lagging since then. As Katrin Loehken, UK economist at DWS, observes, that underperformance started well before the Covid-19 crisis, which triggered an even more severe economic slump in Britain than on the continent. Including the development in 2020, even Italy has now overtaken the British economy in terms of growth.

Of course, this has not gone unnoticed in financial markets. The European stock market, as measured by the Euro Stoxx 50, has outperformed the British market (FTSE 100) by more than 20% since June 24, 2016 – which is substantial even when discounting for different sector weightings. Chip in the devaluation of the British pound, and the difference increases to more than 30%. So in our view there are enough reasons not to play va-banque[1] in the upcoming negotiations, especially from the British perspective.

20200911_CotW_UK growth_CHART_EN_72DPI.png

Sources: Eurostat, DWS Investment GmbH as of 6/30/20

Appendix: Performance over the past 5 years (12-month periods)

08/15 - 08/16 08/16 - 08/17 08/17 - 08/18 08/18 - 08/19 08/19 - 08/20
Euro Stoxx 50






FTSE 100






Sources: Bloomberg Finance L.P, DWS Investment GmbH as of 08/31/20
Past performance is not indicative of future returns.

1. French gambling expression for putting everything at stake


This information is subject to change at any time, based upon economic, market and other considerations and should not be construed as a recommendation. Past performance is not indicative of future returns. Forecasts are based on assumptions, estimates, opinions and hypothetical models that may prove to be incorrect.

DWS Investment GmbH as of 9/9/20
CRC 078245 (09/2020)

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