Economic Effects of Brexit

  • In his budget of 8th March 2017 the Chancellor, Philip Hammond, supported by the Office for Budget Responsibility (OBR), said that compared to the situation six months ago, the economic outlook had improved, at least in the short term. However it is widely believed that the Chancellor and the OBR’s position can be described as one in which the economic and fiscal headwinds from Brexit have merely been delayed, not abolished.
  • While growth this year is forecast to be 2 per cent compared to the 1.4 per cent envisaged last November, the pace then slows faster than that envisaged in November leading to reduced tax revenues with their adverse impact on the level of public borrowing.
  • The Organisation for Economic Co-operation and Development (OECD) does not share as much optimism for this year but has still revised it’s forecast for GDP up to 1.6% from 1.2% previously.
  • Increases in the level of inflation are already being felt due to the fall in the value of sterling. This trend is expected to continue reaching 2.4 per cent this year, thus exceeding the Bank of England’s target maximum, making it likely that they will increase the base rate with it’s consequent effect of raising borrowing costs, including the cost of credit as well as mortgage costs.
  • This situation could be further exacerbated by any further falls in the value of sterling which some commentators believe could happen following the triggering of Article 50 and the response of the EU to the UK’s demands becomes apparent. So there is a real risk that import prices, and consequently inflation, will increase even further than that forecasted by the OBR.
  • Whilst there is expected to be some modest wage growth it is unlikely that there will be any real growth in people’s incomes, rather the reverse, given this gloomy outlook on inflation, so the possibility that real incomes could deteriorate looks increasingly likely.
  • There is also considerable and widespread concern about the significantly inferior level of productivity in the UK economy compared to other developed economies and that without real improvement, which the Government has committed to achieving, real incomes are bound to suffer even further.
  • The Prime Minister has said that “no deal is better than a bad deal”. There is a real possibility that, come the expiry of the two years following Article 50, we could be in a position where there is no deal or that the deal on the table is considered to be a “bad deal”. In this situation the UK would be forced to set up trade agreements on WTO terms. This could be very damaging and potentially disastrous to some sectors of the economy.
  • Even in the “no deal” scenario those in the Brexit camp see a glorious opportunity for Britain to forge ahead and become one of the leading trading nations in the world. Negotiating new trade deals are both complex and extremely time consuming. Stratford4Europe does not share this optimism that other nations will be “champing at the bit” to enter into trade deals with a post EU United Kingdom.
  • The government’s position on the single market will almost certainly mean that we will lose tariff free access to the EU which accounts for nearly 50% of our exports. Replacing this, even if possible, will be complex and take many years to conclude especially with the likes of the emerging economies of China, India and Brazil. In the meantime the economy, and the everyday lives of the UK’s citizens, will suffer, possibly quite badly.
  • Stratford4Europe does not accept the argument put forward by the Brexit camp that the EU has as much, if not more, to lose than the UK. 44% of our exports go to the EU compared to a mere 16% of the EU’s which come here. The Brexit camp’s numbers just don’t add up!
  • In light of all of this Stratford4Europe believes now that Article 50 has been triggered, and this scenario starts to emerge, it will cause people to reflect on the merits, or otherwise, of Brexit however they voted in the referendum.

Stratford4Europe Positioning Statement as at April 2017