Last week the Chief Economist at the Bank of England, Andy Haldane, compared the Bank’s miscalculation on the impact of a vote to leave the European Union to be equivalent to Michael Fish’s infamous error about the Great Storm of 1987. Fish brushed aside concerns that a hurricane was about to hit southern England, whilst the Treasury warned that a hurricane would hit the British economy if we voted to leave. Both have had to eat humble pie.
As the Times reported last Friday, the UK has the world’s top economy. But before the referendum, “experts” predicted that the economy would experience an immediate downturn. In reality it has picked up, growing by 0.6 per cent in the third quarter of 2016 compared to 0.3 per cent in Q1, before the referendum.
The scale of the miscalculation is stark when one looks at the language used in the lead up to the referendum. On the 23rd May—exactly a month before the referendum—the then government released an announcement which predicted that a vote to leave “would cause an immediate and profound economic shock across the country,” whilst George Osborne stated that we had “one month to avoid a DIY recession.”
The reality has been quite different. Instead of falling into an immediate recession, the UK economy has grown since the referendum. Major companies have invested in the UK. In July, the Japanese telecoms group Softbank acquired Cambridge-based ARM in the largest ever acquisition of a European technology business, its chairman and chief executive explicitly stating that the deal highlighted his confidence in the British economy. In October, Nissan committed to building its next generation of cars at its Sunderland plant, and in December recorded a 22 per cent jump in pre-tax profits for its British subsidiary. In November, Google announced that it is to expand its London office, creating 3000 extra jobs. Last week, it was reported that year-on-year consumer spending increased by 2.6 per cent in December 2016. House prices have also increased since the Brexit vote, but I could go on…
Any rational person could therefore draw only one conclusion: that the predictions made in the referendum campaign were at best serious miscalculations or at worst fabricated scare stories, part of the darkest manifestations of “project fear.” The fact is that the UK economy has not entered an “immediate recession” and is growing faster since the referendum than it was prior to it! All this suggests that the Treasury’s predictions were fashioned more by politics than economics.
Many reading this may point out that Sterling has markedly fallen in value against the dollar, since the referendum. Whilst this undoubtedly increases costs for importers, it is a boon for British exporters, with one major continental manufacturer telling me this week that they were working flat out to source components in the UK for their product being sold here. As reported in the Financial Times only last week, UK manufacturing activity in December 2016 was at its highest level since June 2014. Whilst the FTSE 100, where many stocks are held in dollar denominated currencies, is riding high on well over 7,200 points—providing a boost to British investors.
The task ahead is challenging but incredibly exciting as we return to the status of sovereign nation state. The House of Commons has already voted (in a non-binding vote) 461-89 in favour of invoking Article 50 by 31st March, which will start the official process of leaving—and all indications suggest the Lords will not oppose this. We need to move fast to maintain momentum but also to offer business some certainty.
The immediate challenge is to secure a mutually acceptable trade deal with the EU so that our businesses can continue to export tariff-free to the continent, and vice versa. That will be in the interests of one million German workers whose jobs depend on car exports to the UK. However, membership of the “single” market must end as that requires us to accept free movement of labour and the jurisdiction of the European Court of Justice, both completely unacceptable. 20 or more nations outside the EU have seen faster rates of export growth to the EU than Britain has.
The EU Commissioner Michel Barnier wants the Brexit process to last no more than 18 months. I agree. However, if our continental partners refuse to deal we simply revert to World Trade Organisation rules. Meanwhile, we will be able to negotiate free trade deals elsewhere, with the incoming US administration already stating that, far from being at the “back of the queue” as Barack Obama warned we would be thanks to Project Fear, the UK will be in the front seat. This is good news, although we must be prepared to negotiate hard with the US and perhaps go for an immediate but limited deal.
The British people gave us a clear instruction to recover control of our borders, to make our own laws and to stop paying £10 billion a year net to the EU. We are on track to deliver!
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