Three months on from the historic Brexit vote and what does it all mean? What’s happening? Where are we going? When does it start? When does it end?
Only one thing is clear at this stage. All the grim forebodings of doom and gloom have disappeared… in a fog of waffle.
Earnest Brexit conferences staged by accountants, financial firms, business advisers and lawyers have struggled to conclude in a cloud of inconclusion.
Are we going for Hard Brexit outside the Single Market? Or Soft Brexit with Single Market membership? Or perhaps a half hard, hard soft with a Cadburys Flake in the middle?
Will we have border controls or no border controls? Could EU countries actually beat us to the imposition of border controls?
And when will negotiations start? Early next year, says Foreign Secretary Boris Johnson – only to be slapped down by “spokespersons for No. 10”.
European Commission luminaries say negotiations can’t start until after the French elections. Or the German elections. Or when the Italian bank crisis is dealt with. Or when Deutsche Bank shares stop falling…
What’s clear is that – so far – the great Armageddon of economic doom has not struck.
- Last week the ONS chief economist reported that “the referendum result appears, so far, not to have had a major effect on the UK economy.”
- August’s retail sales were surprisingly strong after an exceptionally buoyant July figure.
- The Society of Motor Manufacturers and Traders reported that August car output was the strongest August for 14 years. Exports were especially buoyant.
- The CBI said their latest Industrial Trends Survey suggested that manufacturing to grow well.
- Employment continues to grow and unemployment fall (three months to July). Average earnings growth is easily outstripping prices inflation.
- House prices maintain the strong growth seen since the end of 2103, even though the annual increase eased in July (ONS data).
- The latest Bank of England Agents’ report suggested continuing growth, albeit slowing.
- August’s public borrowing data were disappointing and the OBR’s March forecast for the PSNB (public sector net borrowing) for FY2016 is almost certain to be overshot.
- CPI inflation remains well under control and was unchanged at 0.6% in August.
- Producer output inflation is picking up but is still well under control and, even though producer input prices are picking up more substantially reflecting the weaker pound, it is unlikely there will be a damaging burst in output prices inflation.
- The OECD marginally upgraded the UK’s GDP growth forecast for 2016 (from 1.7% to 1.8%), though more substantially downgraded the forecast for 2017 (from 2.0% to 1.0%).
- The MPC left monetary policy unchanged at its September meeting, expressing the view that the economy had performed better than expected in August. Even though the MPC touched on the possibility of another cut in interest rates, this seems highly unlikely given the growth in the economy.
Now compare this to what the experts were telling us about the aftermath of a Leave Vote.
Said the Bank of England: “There is a risk that a period of heightened uncertainty around the referendum could dampen confidence, prompting households to defer consumption and increase their savings.” In fact, household spending enjoyed its biggest rise since 2014. Since the referendum, spending in July and August outperformed forecasts.
Christine Lagarde of the IMF said a “protracted period of heightened uncertainty” would result in “sharp drops in equity”. Yes, markets did fall the day after – but have gone on to recover, with both the FTSE100 and the FTSE250 both showing double digit percentage gains.
On house prices, George Osborne warned that that a Leave vote would produce an “immediate economic shock” that would “affect the value of people’s homes” to the tune of 18 per cent. Both demand and asking prices have continued to rise.
“Immediate” recession? Osborne declared that “a vote to leave would represent an immediate and profound shock to our economy. That shock would push our economy into a recession”.
Last week the Treasury published its basket of independent GDP forecasts for the year, gathered from 38 City and non-City financial institutions, which showed expectations for GDP growth are back on track, with no sign of the Q3 shrinkage Osborne predicted. Last Wednesday, the OECD, which had echoed Osborne’s warnings, upgraded its GDP forecast for the UK for 2016.
Rising unemployment? Osborne predicted that immediate recession would “lead to an increase in unemployment of around 500,000″. During the supposedly damaging uncertainty of the referendum campaign itself, unemployment in fact fell to the lowest level since 2005.
An emergency budget? Osborne, along with Alan Johnson, said a few days before the referendum that a Leave vote would result in an emergency budget, involving £30 billion of spending cuts and tax rises. Unsurprisingly, it has not come to pass.
Higher interest rates, mortgage costs and business borrowing? Both Lagarde and Osborne chose to hold the prospect of increased borrowing costs over homeowners and businesses. The IMF boss predicted “increased borrowing costs”, and the Treasury’s assessment of the immediate impact included “higher interest rates on borrowing by businesses and households”, as well as “a tightening of UK financial conditions, including higher mortgage rates”. Instead, the Bank of England’s Monetary Policy Committee cut interest rates, while corporate borrowing costs swiftly returned to normal, while the cost of government borrowing fell.
As for the future? Well, one thing’s for sure? Waffle means waffle. And perhaps on reflection, waffle might be preferable to expert economic forecasting.