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2 September 2016

Is Brexit a success after all? Don’t believe a word of it

It's far too early to say whether Britain's Brexit vote is a success or a failure. 

By Stephen Bush

I don’t mean to make a habit of doing a blog every time someone makes a dubious claim about the success of Brexit*, but the good economic figures have got some of the Leave campaigners out of the woodwork, showing increases in the Purchasing Managers Index, a useful guide to private sector sentiment, and increasing consumer confidence, a handy guide to how households are behaving. There has also been an uptick in credit card spending, another sign of consumer confidence, although considering Britain’s large private debt problem, not a wholly positive one.

Fears of a Brexit-induced recession, we are told, have been greatly exaggerated. Is this true?

Well, there is a lot of important data out there that we have yet to see. We don’t know yet what, if any, impact the Brexit vote has had on investment in the United Kingdom. Even this month’s better-than-expected figures show a fall in the construction industry, usually the canary in the coal mine as far the British economy and recession is concerned. The pound is still significantly weaker than it was when Britain voted to leave, although it’s worth noting that some people, including John Mills, Labour’s largest donor and a key supporter of a Brexit vote, were arguing pre-Brexit that the value of the pound needed to drop in any case.

It also may well be that the economy has hit a brief sweet spot, in which the lowered value of the pound attracts tourists and boosts the stock market, while Britain benefits from untrammelled access to the single market.

So there are many reasons to be sceptical of anyone claiming that worried Remainers have been proved wrong, or any claims that the Brexit vote is a latter-day version of Britain’s exit from the exchange rate mechanism, briefly seen as a disaster but instrumental in kicking off what Mervn King christened “the nice decade” (no inflation, constant expansion) from 1993 to the financial crisis.

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But the most important one is this: we haven’t actually left the European Union yet.  Any commentary on Brexit is a bit like saying you’ve bought a house just because you’ve wondered into an estate agent’s. Certainly Britain is in the market for an exit, but the gulf between the expectations of Brexiteers in the government and their allies in the press and what is likely to be on offer is large, to put it mildly.  What has clearly been a success so far is Theresa May’s efforts to portray herself as a safe pair of hands, which is probably behind some of the recovery.

And there’s a sting in the tail here. Part of the reason why the post-Brexit fall was so large was that the markets had priced in a Remain win. The markets, businesses and ordinary households seem to largely be pricing in a soft Brexit that allows Britain to retain most of the advantages of membership of the single market. As I’ve written before, there is a path to a successful Brexit that doesn’t knacker the British economy – it just involves breaking many of the promises made by Vote Leave, something that May has sounded reluctant to do just yet. It may well turn be that Britain’s “out” vote turns out to be a success well beyond the predictions of many. But the evidence so far that it will is pretty thin.


*Although if I did it would solve Britain’s productivity puzzle at a stroke.