After an initial surge, the British economy has now started to feel the Brexit bite

When the second largest economy in Europe voted on 23 June 2016 by 51.9% in favour to leave the European Union (EU), it sent a shock wave throughout the United Kingdom (UK), Europe and the world. Most economists had predicted a severe economic downturn. Yet, in the immediate aftermath of the vote, the British economy performed better than expected, boosted by strong consumer spending and the Bank of England’s decision to lower the cost of credit.

By the time the official EU withdrawal process was triggered by Prime Minister Theresa May on 23 March 2017, however, the British economy was starting to feel the Brexit bite: GDP growth fell to 0.3% in the first quarter of 2017 - more than half the previous year - the trade deficit widened, and inflation was on the rise. The UK’s ability to sustain one of the highest growth rates and lowest unemployment rates among Europe’s mature economies appeared under threat.

Well aware of the risk of prolonged Brexit uncertainty, the UK government has been performing a belly dance with business since the historical vote. For instance, a carefully crafted “Welcome to Great Britain and Northern Ireland” communication campaign has positioning the country on the forefront of “game changing” technology. Moreover, the government has pledged to lower its corporate tax rate from 20% to 18% by 2020 and reduce the budget deficit from 5% to 3%. However, these signals have not been sufficient to stem the recent economic dip.

What are the real longer-term prospects for multinational firms based in the UK? How can these prospects best be assessed? The answer depends first on the rationale for investment.

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• The Impact of Brexit on Business