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Brexit State Of Play

With a thousand apologies for writing about a crowded topic, we take stock of the UK economy nearly twelve weeks after Britain voted to leave the EU.

Too early to say. In 1972 the Chinese premier, Zhou Enlai, famously said it was too early to say what was the impact of the French Revolution of 1789. It should not take so long to get a sense of Brexit’s impact but ideally one would wait until 26th January 2017, when the fourth quarter GDP statistics will be released, giving two full quarters of information. Just 81 days after Brexit, with little hard data available, it is too early to say much that is sensible.

Unreliable evidence. However, the markets are impatient and so we have pulled together 18 timely indicators, mainly surveys, under four headings – whole economy, consumer spending, investment intentions and exports. Taking the period since January 2011, the bad news is that thirteen measures are below their post-2011 average versus only five above.

However, the UK economy has been slowing since late 2014 so perhaps it is fairer to look at the latest numbers versus the second quarter average. On this basis, seven indicators are stronger but eleven are weaker. Notably, using both methods, investment intentions have worsened but export orders have improved, as one would have expected.

This is not a Lehman moment. The financial crisis and recession in 2008-09 was the worst in over 80 years. Brexit is not even close in its severity. The chart shows that the UK economy is back to the early 2010s, not the 1930s, although this is with the help of reduced political uncertainty, a weaker pound and Bank of England easing.


Depends upon the deal. Moving from the near term to the longer term, much will depend upon the eventual terms on which the UK leaves the EU and what trade deals can be struck. However, since government policy currently amounts to “Brexit means Brexit”, we have very few clues.

We’ll never know. And, of course, the rarely-mentioned truth is that we shall never know just how much leaving the EU will affect the UK economy. It would be nice to run two parallel universes, one where Britain votes to Remain and another where the vote is Leave, so that we can compare the two. Sadly, this is not possible outside of science fiction. However, one respected economic historian, Prof Nick Crafts of Warwick University, reckons that UK membership of the EU has added 10% to UK GDP.

Likely outturn – lost output, slower growth. However, given near-term uncertainty and longer-term damage to trade and inward foreign investment, the UK economy is set to lose some relative output over the next couple of years. On some mild but reasonable assumptions, output could be nearly 1% lower by end-2017 than if Remain had won. Farther ahead, our best guess is that long-term growth might be say 1/4% a year weaker (or 2.5% over a decade).

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