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Britain's slowing economy is a sign of the times in the deteriorating global picture. Since the January 23rd Brexit referendum, data in the past weeks has demonstrated slowdowns or contractions in construction, services, and manufacturing. More data out today has confirmed this trend in the London property market which is showing weakness. Even when sellers reduce their prices, properties are remaining on the market longer. These economic problems in Britain and also Japan are spilling over into oil and feeding through as support for gold as well.
Brexit Now Slated to Happen End of 2019
Britain has been trying to get the so-called divorce with the EU over in a timely fashion. This would be better for the British economy, the European Union economy, and the world economy in general. A new report from the Sunday Times shows that this is not likely to happen as soon as everyone had hoped. Delays in final separation could last until late 2019. The reasons behind this have to do with new departments that are being set up at a far slower pace than needed. Both the Brexit and International Trade ministries are facing challenges in recruiting the levels of staff they need to carry out the separation. This is happening at the same time as tensions are growing between Foreign Minister Boris Johnson and International Trade Secretary Liam Fox as they struggle to determine who will control what aspects of the policy. Initially the new Prime Minister Theresa May had hoped to invoke article 50 of the EU treaty for exit by early 2017. Political pressure has been growing for her to provide certainty and clarity for the economy and to heal divisions in her own Conservative party which the referendum exposed.
Delays in Staffing New British Departments Mean Negotiating Partners May Change
The delays in staffing these new British departments are substantial. David Davis the Brexit minister has added on under half of his needed 250 staff. International Trade secretary Fox currently has under 100 of his necessary 1,000 experts on trade policy. Both of these departments will not likely be fully staffed and ready to start negotiations before the next general elections in France slated for May of 2017 or the German elections that come in September of 2017. While Angela Merkel still enjoys favorable opinion poll ratings in Germany, President Hollande in France is extremely unpopular. His party could easily lose the next election, and a new government would mean different negotiating partners with the second largest remaining EU economy. At stake is the shape of the future British relationship with the European Union. This could have profound impacts on both the British and European economies.
Record Bets Against the Pound Destabilizing Currencies
Meanwhile the British pound is suffering and declining significantly amid the economic slowdown in the UK. Stimulus from the Bank of England has already begun in the form of lower benchmark interest rates and a restarted quantitative easing program. Hedge funds sense an opportunity in the weakening currency and have placed record bearish bets versus the pound. Data going back to 1992 from the Commodity Futures Trading Commission reports that the large speculators have increased these pound sterling net bearish positions to the most seen, per a report put out by Kevin Buckland and Narayanan Somasundaram of Bloomberg. The pound has dropped to a month long low Monday, bringing it down 12% against the dollar for 2016 so far. This gives it the worst performance against the dollar versus 31 separate major currencies. As if this were not bad enough, some of the currency analysts see the pound declining to parity with the Euro within 18 months.
Japan Shows Zero Growth for Second Quarter
Britain is not alone in its economic troubles these days. The Japanese economy did not grow for the second quarter of 2016 on a quarterly basis. The GDP data demonstrated zero growth that was lower than already dismal predictions. For an annualized basis it amounted to a .2% expansion. This was down from the 1.9% of the first quarter. The Reuters economists polled had been looking for an annual increase amounting to .7% with a quarterly gain of .2%. The Japanese economy minister Nobuteru Ishihara blames the risks on slowing growth in the emerging markets and the ongoing uncertainty of Britain leaving the European Union. The economic problems from Brexit are already feeding through to other parts of the world.
Oil Demand Drop Warning of Global Slowdown
Another place where this weakness is sounding warning bells is an unimpressive demand for world oil. Even though oil prices are up from the beginning of the month, the markets are oversupplied and global growth is shaky. Last week the International Energy Agency (the IEA) lowered its forecasts for worldwide oil demand because of the uncertain outlook for economic growth and mixed economic results from both the United States and China. Gold will be the best insurance policy for your retirement accounts in these uncertain economic times. Consider rolling over some of your assets to a Gold IRA.