Brexit, according to its supporters, will free the British economy from the burden of EU regulation and Brussels political interference, liberating our manufacturers and financial firms into a new era of prosperity from which we will all benefit.
So why don’t international markets understand this?
As readers understand extremely well, in this uncertain world big investors are desperately searching for anywhere they can place their money and get a safe return. At the moment, flows of big money seem to be guided by perceptions of least risk rather than best returns. Any perception of increased risk triggers big shifts of money.
Internet-based opinion polls indicate the in-out camps are evenly balanced at 50:50. Telephone-based surveys, which are thought, based on evidence from last year’s general election polling debacle, to be more accurate, suggest that the out-ers have gained five percentage points in the last month but the in-ers are still ahead by a 55:45 margin.
That adds up to an increased risk of the out-ers winning.
You could argue that this last sentence should be re-written to say there is an increased hope of a pro-Brexit vote. If so, then surely the markets, assuming they accept the out-ers claims as good sense, should be perking up and rushing to position themselves for the big Brexit boost to the British economy.
Funnily enough, they seem to be doing precisely the opposite. This Monday (April 11th), Reuters reported: “Sterling started the week on a subdued note on Monday, trading near its lowest in 28 months against a basket of currencies, as investors and speculators increased bets against the currency on worries about Britain exiting the European Union.”
That seems pretty clear, although you could argue that since the prospect of an interest rate rise is receding, that’s why investors are sterling-shy.
But that doesn’t hold much water as interest rates everywhere are either stuck or looking likely to fall.
Reuters continued: “The pound has largely been driven down since the end of last year by worries that Britain will vote to leave the European Union in a referendum on June 23. Any sign that a Brexit is becoming more likely drives it lower.
“Sterling was down 0.1 percent at $1.4110, while it was lower against the euro at 80.79 pence. All of which left trade-weighted sterling at 83.5, not far from a 28-month low of 83.3 hit last week.”
The lowest in two years? And Britain has one of the better-performing economies, certainly in the European Union? Any explanation that could be contrived – that it is the fault of the struggling Eurozone, for example – is exactly that, a contrivance. The only coherent explanation is as outlined by Reuters – investors think Brexit would make Britain a worse investment, not a better one.
But perhaps they are all wrong and contrarian pro-Brexit voices are right, as indeed were contrarian voices before the financial crisis. After all, isn’t the London stock market doing well just now?
Doh. That is precisely because the pound is doing badly. The bulk of the value in the FTSE-100 is in multi-national companies whose overseas earnings are boosted when sterling falls in value.
Aha. Here there might be a cunning Brexit ploy. If a Brexit vote causes the pound to fall still further, these companies will benefit still more and Britain will become more prosperous yet surely?
No, it won’t because of the two-year stall on business investment caused by the uncertainty while Britain’s trade deal with the EU is figured out.
And even if the economy then did flourish, the boost caused by low-value sterling would vanish as investors bought back the pound.
The out-ers economic arguments just do not add up. The markets, in this case, are right.
Peter Jones is a freelance journalist, writing primarily for The Times and The Economist, and contributing occasional political economy analysis to BBC Scotland TV and radio.