Economists everywhere are busy trying to read the tea leaves amidst the sound of screeching U-turns.
The Brexit bounce continues apace. All the talk of immediate financial meltdown has proven to be hysterical nonsense. Economists looking for data to back up their claims have found the figures to show robust economic health and recovery from the initial shock and panic.
There’s no doubt that we did see an immediate negative reaction and a wave of panic. The stock market and the pound plummeted. This was inevitable given that the Chancellor and the Bank of England used the prestige of their offices to stoke fear, uncertainty and anxiety in order to portray a vote to leave as a suicidal leap into an economic abyss. Not to mention the inaccuracy of the polls that mean the result of the referendum was a shock to most people.
Then came the resignation of David Cameron, the turmoil in Labour, and the revelation that the Government really had ensured that nobody made any plans for what to do if the public voted to leave – which was a shameful act of self-sabotage – all of which exacerbated the shock.
Now, things are looking very different. The indexes of business and consumer confidence that plunged in July have surged — a Brexit bounce.
A central pillar to the economic Armageddon argument was that consumer confidence would implode as the public panicked. This was always nonsense espoused by economists who inhabit a bubble. Guess what? After the vote the majority of the public got on with their lives, the EU and Brexit plummeted down the league tables of “topics of conversation at work” and there was no widespread panic, anger or buyer’s remorse. Consumers spent happily.
The OECD now expects the economy to hold up strongly for the rest of the year, defying warnings of an immediate collapse. The Office of National Statistics agrees, with its chief economist Joe Grice stating: “As the available information grows, the referendum result appears, so far, not to have had a major effect on the UK economy. So it hasn’t fallen at the first fence but longer-term effects remain to be seen.”
HM Treasury has today released forecasts of the economists it follows; the average new forecast suggests GDP will grow by 1.8% this year, much better than the 1.5% forecast last month. New figures show that the UK budget deficit fell by almost £1bn in August, as the government borrowed £10.5bn in the month, which is down from £11.4bn a year ago. The ONS said that the 8% fall means this was the smallest August deficit since 2007..
Employment is at a record high, tax revenues are increasing and wages are beginning to slowly rise, all while consumer spending is growing thereby increasing VAT receipts and corporation tax. These are all positive indicators of economic growth.
Manufacturing activity has rebounded at the joint-fastest pace in 25 years last month and the pound rose after Markit’s latest survey of the sector showed factories were returning to “business as usual”. The initial panic is over; and the predictions of the aftermath have proven to be tainted by political motivations, emotions and false assumptions.
Christine Lagarde, managing director of the IMF, claimed that a Leave vote would have “bad to very, very bad” consequences for the global economy. The consequences on the global economy have been zilch.
We must now be prepared for any negative economic signs in the coming years to be blamed on Brexit, even though there were many warning signs for the British economy long before the referendum. The economy was already on a trend on long term slowdown and, as George Osborne himself warned, the lights of the global economy have been flashing red. The Eurozone stagnation, the economic setbacks in developing economies and the slowdown in China will continue to be a threat to Britain.
It is, of course, far, far too early to be boasting about anything or making any long term judgements. We haven’t left the EU yet, all we know is that the warnings about the immediate reaction were over the top, and wrong. We do have difficult times ahead. There will be uncertainty, that is absolutely unavoidable, and it is likely to lead to stalls in investment. We face a troubling few years.
What we need now is for the Bank of England to continue to be proactive, for the Treasury to stimulate the economy and, above all else, to get the negotiations right and secure an economically safe transition.
Ben is the Conservatives for Liberty Online Director. Follow him on Twitter: @TheScepticIsle
The views expressed in this article are that of the author and do not necessarily reflect the views of Conservatives for Liberty