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Saturday, 3 September 2016

Economic Impact of #Brexit (If Any) Is Years Away...

Not a day goes by without someone declaring that the economic  impact of Brexit has been either overestimated or is being underestimated. 

This has to be utter rubbish. 

The UK is still in the EU. Situation normal. Nothing has changed. Changes in the economic data must be due to other causes.

While the impact of the referendum itself - and the related political nonsense - might have affected some figures, I don't see how the actual impact of the UK leaving the EU could be reflected in any way. 

When might any impact be felt, if ever?

Not only is the UK still waiting to decide exactly when to trigger the formal two year 'Article 50' leaving process, but it is also still trying to figure out the list of issues that need to be resolved and the appropriate negotiating strategy and tactics to resolve them favourably (if possible), not to mention how to recruit the people who are supposed to be doing the negotiating. 

Personally, I doubt the UK is capable of getting this done in any conceivable time frame, and to trigger the Article 50 process without figuring these things out would be insane. So it would not surprise me if the UK never actually manages to trigger the Article 50 process (the wisest course). 

Which would mean Brexit itself would have zero economic impact. 

There may be economic volatility while the implications of triggering Article 50 are being worked through, but that would still not really be the result of actual Brexit. The referendum experience has shown that people don't really look beyond the horizon, so they would not be reacting to an actual decision either way, just the trigger decision itself.

If the UK does manage to trigger Article 50, then we would see another burst of economic volatility while everyone digests (the madness of) that decision and what it might mean when the leaving process is complete. The chief issue would be whether the UK would be able to complete the necessary negotiations within the two year time limit, in order to avoid the default trade position (the worst case, unless of course the UK manages to negotiate an even worse set of deals than that - not inconceivable!).

There would then be all sorts of fresh economic volatility during the two year Article 50 period, while everyone reacts to the latest news about each of the trade negotiations might affect them and their sectors. Speculators would have fun, but everyone else would need to wait and see what actually shakes out. Meanwhile, any news about the plight of other EU members and the EU itself would also affect everyone's view.

Of course, if the leaving process were completed, there would be reactions to how the various deals actually unfold and whether they would be extended or renegotiated. But that position would be the 'new normal', so not really Brexit related at all.


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