What’s Really Harming The U.K. Economy Besides Brexit

Apart from the Brexit, there might be three other major risks that leave the country's economy exposed to another downturn:

1. RECESSION SHOCK: Even with the interest rate cuts, since the U.K. is facing no inflation problems, the odds of the U.K. economy to shrink in the next five years are very high. The slowdown is primarily caused due to high debt levels of the U.K., skyrocketed current account deficit and surged unit labor costs. Neither is there any emergence of a new hefty sized economy nor any tech advances having economy-wide productivity boosts.

2. MARKET SHOCK: The financial crisis of 2008 has affected the annual growth of economy globally. Post-crisis, there has been structural and regulatory pressures on the banks. The most evident prospect for the next crisis to occur would be the upheaval in non-bank financial sector (NBFC). The field of non-bank sector and private markets is broader and comprises of many more potential lines of business. They have a less restrained balance sheet as compared to the regulators. The biggest benefit for these players is that they can easily invest in illiquid assets though having an obvious risk of assuming the assets to have a liquid market into which they can be sold.

3. PENSION SHOCK: At the present, about 40% of the people in the U.K. are over the pension age. The U.K. is facing projections of higher government spending and budget deficits as its population ages. Most of the pension funds in public sector have diversified into private equity and other riskier investments. One of the proposed solutions by a large pension scheme in the U.K. is for the public sector workers to amplify their contributions to make up for any short fall.

Therefore, there is a critical prerequisite of creative bank policies to take care of these upcoming crises.

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