I think it is important to bear in mind that economists never said "the sky will fall in". Scenarios for the economic hit from Brexit ranged from something like 2% to 7% of GDP. Sizeable (and not a price I felt worth paying) but not the end of the world.
To date, we have only limited economic information, but the signs are of a negative impact, especially in terms of property and capital investment. Commercial and residential property markets have become quite bunged up and investment decisions do seem to have slowed down. Too early to say what the scale or how long lasting.
The most direct way in which we are all poorer is the fall in the value of the pound. Its down about 10% - so everything we buy from abroad is going to be more expensive. I'm noticing that straight away with holidays to Brazil and Germany - Brexit will already have cost be a couple of hundred quid! It will start feeding through into consumer prices of goods in the UK over the next year or so (petrol probably quicker).
The fall in the value of the pound is one reason why the FTSE 100 and 250 aren't doing so bad in pounds terms. One way of thinking of it is that while the FTSE 100 is up and FTSE 250 down not too much in £ terms, they are down in $ terms, which matters to international investors. Another way of thinking about it is that around 80% of the earnings of FTSE 100 companies are from outside the UK, and the weaker pound means those earnings are now worth more in £ terms.
If you look at those sectors most exposed to the cyclical parts of the UK economy - banking, property - then they are down a fair bit, although they have made up some ground.
I think the markets are also pricing in what we might term "liberal Brexit" - in effect close-to-full access to the single market, probably at the expense of continued substantial budget contributions, and/or close to full freedom of movement of people. Whether or not this is acceptable to the British people and/or negotiatiable remains to be seen. But there are strong forces pushing for this sort of Brexit-lite deal (which, incidentally, requires the application of many EU single market rules, without voting rights).
The boost exporters will get from the lower £ is overhyped in my view: a lot of the components that go into exports are actually imported (and will cost more) - especially in the sectors that have been doing so well over the last few years, like cars. I think the clear preference for big exporters in these sectors for Remaining in the EU shows which side they think their bread is buttered too.
And even if some exporters do okay out of the depreciation - overall it makes us poorer. I've been increasingly frustrated by the economic illteracy of some of the UK's media when they talk about our currency buying less of what others produce as making us somehow better off, when it clearly does the opposite.
http://www.ifs.org.uk/publications/8361"There is a fallacy knocking around that somehow economics tells us that a weaker currency is good because it promotes exports. Part of that fallacy is based on a truly fundamental misunderstanding of what economics is all about, which goes a goes a bit like this. Exports are good and imports are bad. A lower exchange rate makes exports cheaper and imports more expensive, so there will be more of the former and less of the latter. So we’ll be better off.
This argument is plain wrong. You don’t make British people better off by getting them to work hard to make stuff for others to enjoy on the cheap, while themselves paying more for things produced overseas. You do it by ensuring, through effective policies on education and skills and competition and infrastructure and trade, that British workers produce more in each hour they work so that the actual value of what they produce is higher, so they can earn more and consume more."
Wed Jun 29, 2016 11:29 pm
